That credit is a 15 year tax-free installment "loan" of $7,500
Purpose of Form
Use Form 5405 to claim the first-time homebuyer credit.
The credit may give you a refund even if you do not owe
any tax.
The credit operates much like an interest-free loan. You
generally must repay it over a 15-year period. See
Repayment of Credit on page 2
Repayment of Credit
You generally must repay the credit over a 15-year period
in 15 equal installments. The repayment period begins 2
years after the year in which you claimed the credit. Thus,
if you claim the credit on your 2008 tax return, the
repayment period begins in 2010 and you must include
the first installment as additional tax on your 2010 tax
return.
If your home ceases to be your main home before the
15-year period is up, you must include all remaining
annual installments as additional tax on the return for the
tax year that happens. This includes situations where you
sell the home or convert it to business or rental property.
If you and your spouse claim the credit on a joint
return, each spouse is treated as having been allowed
half of the credit for purposes of repaying the credit.
Example 1. You claimed a $7,500 credit on your 2008
tax return. You must include $500 ($7,500 4 15) as
additional tax on your 2010 tax return and on each tax
return for the next 14 years.
Example 2. You claimed a $7,500 credit on your 2008
tax return. In 2009, you sold the home to your son. You
must include $7,500 as additional tax on your 2009 tax
return.
Exceptions. The following are exceptions to the
repayment rule.
- If you sell the home to someone who is not related to
you, the repayment in the year of sale is limited to the
amount of gain on the sale. (See item 8 under Who
Cannot Claim the Credit for the definition of a related
person.) When figuring the gain, reduce the adjusted
basis of the home by the amount of the credit you did not
repay.
- If the home is destroyed, condemned, or disposed of
under threat of condemnation, and you acquire a new
main home within 2 years of the event, you continue to
pay the installments over the remainder of the 15-year
repayment period.
- If, as part of a divorce settlement, the home is
transferred to a spouse or former spouse, the spouse
who receives the home is responsible for making all
subsequent installment payments.
- If you die, any remaining annual installments are not
due. If you filed a joint return and then you die, your
surviving spouse would be required to repay his or her
half of the remaining repayment amount.
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