Recapture of First-Time Homebuyer Credit(p29)

If you claimed the first-time homebuyer credit for a home you purchased in 2008, you may have to recapture all or a portion of the amount you claimed. For a home purchased in 2008, you must repay the first-time homebuyer credit over a period of 15 years, starting in 2010. If your home ceases to be your main home before by the end of the 15-year period, you must include all remaining annual installments as additional tax on the tax return for that year. Your home ceases to be your main home if you sell the home, convert the home to business or rental property use, or the home is destroyed, condemned, or disposed of under the threat of condemnation. In the event of a sale or other conversion you will need to file Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, with your tax return. In the case of the sale of the principal residence to a person who is not related to the taxpayer, the recapture shall not exceed the amount of gain, if any, on such sale. Solely for purposes of figuring this gain limitation, reduce the basis by the amount of the credit that has not been repaid.

Dan and Kareema Love received $7,500 under the first-time homebuyer credit. They purchased the home on October 14, 2008, for $200,000. In 2009, they made improvements to the home that increased their basis by $1,000 to $201,000. They sold the home on November 3, 2011, for $198,000 to an unrelated person. Solely for purposes of figuring the gain limitation on how much of the first-time homebuyer credit they must repay, the adjusted basis of the home is $192,500 ($200,000 - $7,500 + $500). This amount is the original purchase price minus the unrecaptured portion of the credit plus the amount recaptured on their 2010 tax return. Dan and Kareema would have to accelerate the recapture of the $7,000 and repay the entire amount by adding it to their income tax liability for 2011.

If one of the following applies, you do not have to recapture the 2008 first-time homebuyer credit.

• Death.
• Involuntary conversion (see definition under the section Dispositions Other Than Sales, earlier).
• Transfers between spouses or incident to divorce.
• You are a member of the uniformed services, an employee of the intelligence community, or a member of the Foreign Service of the United States on qualified official extended duty service.

If you claimed the first-time homebuyer credit for a home you purchased in 2009 or 2010, the credit is not required to be repaid unless your home ceases to be your main home within 36 months of the date of purchase. 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. Solely for purposes of figuring the gain limitation, reduce the adjusted basis by the amount of the credit. See the Instructions for Form 5405 for additional information.

Members of the uniformed services or Foreign Service and employees of the intelligence community do not have to repay the credit, if you sell the home or the home ceases to be your main home because you received Government orders to serve on qualified official extended duty.

For more information and assistance, see IRS.gov and click on "Tools" to access the "First-Time Homebuyer Credit Account Look-up Tool."