Repayment of First Time Home Buyer Credit

Congratulations, you took advantage of the first time home buyer credit in 2008, 2009 or 2010 but now you have to move.  Well it turns out there is a catch to the credit, (this is aside from the big question of whether or not tax dollars should be used to subsidize the construction industry under the guise of helping people buy homes).  Generally, if you quit using that home as your main home within 36 months of purchase you are required to pay back the credit in full that year. (Home buyer credit)  Interestingly enough, if you died you are deemed to having quit using that home as your primary residence and may have to repay the credit.

As they say, the devil is in the details, but in this case it could be salvation.  There are some important broad exceptions to this.  The most far reaching is if you sold your home to an unrelated party your repayment of the credit is limited to the gain on the sale of your home.  This repayment limitation applies to all 3 years of the credit including 2008.

If you are unfortunate enough to lose money on the deal then you do not have to repay the credit beyond any amount already repaid.  In most cases form 5405 needs to be filed recognizing the disposition with your tax return.  If you look at the form sections IV & V will get a clear picture of how this works.

Like I said, the devil is in the details and specifics count in taxation.  Form 5405 and the instructions are relatively concise and easy to understand on this issue.  As always, consulting a CPA is a good ideal as well.

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