What Is Form 5405 Repayment of the First-Time Homebuyer Credit?

Form 5405, First-Time Homebuyer Credit and Repayment, is a tax form issued by the IRS. It allowed taxpayers to claim a percentage of a new home’s purchasing price.

Taxpayers no longer receive that credit. Those who bought homes before 2010 can claim it, provided they closed before September 30, 2010.

Understanding Form 5405: First-Time Homebuyer Credit and Repayment

In 2008, Obama signed the federal first-time homebuyer tax credit. The tax credit was available from April 9, 2008, until September 30, 2010.

The 2008 program allowed a 10% tax credit on the home’s purchase price up to $7,500. The maximum rose to $8,000 in 2009. Homebuyers who paid $75,000 to $80,000 might obtain the full tax credit. The credit was the smaller of a specified percentage or dollar value of the home’s purchasing price.

The homeowner was usually responsible for repaying the whole credit if the home was sold within 36 months of purchase or ceased to be the taxpayer’s primary residence.

Individuals who bought homes in 2008 received a $7,500 interest-free loan, repayable in 15 equal installments over 15 years.

Who Can File Form 5405: First-Time Homebuyer Credit and Repayment?

Individuals and married couples could claim the tax benefit. Initially, only first-time homebuyers (defined by the IRS as taxpayers who have not purchased a property within three years of the purchase) were eligible. Longtime residents who bought a new “replacement” home received the credit later. Typically, this group gets a maximum credit of $6,500 without repayment obligations.

The homebuyer’s MAGI and buying price must not surpass a particular threshold. Since there was no income floor, the tax credit might repay the filer even if they paid no taxes.

Homebuyers added Form 5405 to their tax return and a copy of the settlement statement (usually the HUD-1 Form). The form included all parties’ names, signatures, property addresses, acquisition dates, and prices. Mobile homes might use other contracts to prove they meet credit standards.

Purchasers of qualifying homes who did not claim the tax credit on their 2009 returns should file an amended 1040-X return with Form 5405 attached to receive their credit.

President Biden announced a $15,000 first-time homebuyer tax credit to make purchases more accessible after assuming office in January 2021. A bill introduced in April 2021 lingered in the House until September 2022.

Form 5405 example

Download Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, from the IRS website.

Form 5405 Revised

In November 2021, they amended Form 5405 to allow the first-time homebuyer tax credit repayment. The updated Form 5405 aims to:

• You should inform the IRS in 2021 that you sold or no longer own your main home in 2008, for which you claimed the credit. Complete Part I and, if needed, Parts II and III.
• Determine the credit you must repay on your 2021 tax return. Finish Parts II and III, if needed.

If they bought the home in 2008 and meet either of the following conditions, taxpayers must file Form 5405 with their 2021 tax return:

• Someone sold the property in 2021.
• In 2021, the taxpayer stopped living there.

Conclusion

• IRS Form 5405, First-Time Homebuyer Credit and Repayment, is a tax form.
• It allowed homeowners to receive a now-defunct tax credit for buying a new or replacement home from April 9, 2008, to September 30, 2010.
• The tax credit was 10% of the home’s purchase price, up to $6,500–$8,000.
• After being amended in 2021, Form 5405 is mostly used by tax credit recoupers.