If you are moving out of a home for which you claimed a First-Time Homebuyer Credit, you may need to complete and submit Internal Revenue Service Form 5405. This form is used to notify the IRS that you've sold the house for which you claimed this credit or that you've stopped using it as your primary residence.
Who Needs Form 5405?
This form is only necessary for taxpayers who:
- Bought a house in 2008 and sold or stopped living in the house during the current tax year, or
- Bought a house in 2011 and then that house was destroyed, condemned or sold under threat of condemnation in 2014, less than 36 months after the purchase date
Some exceptions exist for taxpayers who meet one of the two above criteria, which you can review via the instructions for Form 5405.
Completing Form 5405
Form 5405 has three parts.
Part I: Disposition or Change in Use of Main Home
Use this section to indicate the reason that you're required to repay the First-Time Homebuyer Credit.
Line 1: Enter the date you stopped using the house as your main residence.
Line 2: Check this box if you or your spouse are a member of the uniformed services (including the Armed Forces), the Foreign Service, or the U.S. intelligence community and you moved or sold the house because you or your spouse was ordered away for qualified official extended duty (either serving at least 50 miles from the house, or ordered to live in government quarters). In this case, you're not required to repay the credit.
Line 3: These check boxes indicate the circumstances under which you stopped living in the house. Check the box that matches your circumstances and then follow the instructions for the selected box. Choices include if:
- The home was sold the home for a gain or loss
- You sold it to a person to whom you are related
- It became rental property
- It was given to a former spouse as part of a divorce settlement
- It was destroyed or condemned
- The taxpayer who originally claimed the credit died in the current tax year
Depending on which box you check, the form will instruct you to stop, continue to Part II, or see the form instructions for more information.
Part II: Repayment of the Credit
In this section, you will calculate how much of the credit you're required to pay back to the IRS.
Line 4: On this line, write the amount of the credit you claimed when you bought the house. Consult the Form 5405 that you filed when you claimed the credit to find how much you claimed. (Note that Form 5405 was previously used to claim the credit for purchasing a home within the prescribed period.)
Line 5: If you bought the house in 2008, use this line to indicate how much of the credit you've already repaid. If you haven't repaid any of the credit, put a zero on this line.
Line 6: Subtract the amount in line 5 from the amount in line 4 and write the result here. This is the amount of credit that you haven't repaid.
Line 7: If you made a profit on your house's sale or destruction, you'll need to fill out Part III. Once you've done so, write the total from line 15 here.
Line 8: You will write the amount from either line 6 or line 7 here, depending on when you bought your house and why you no longer live there.
- Use the amount from line 6 if:
- You bought the house in 2011, checked either the box on line 3f or 3g, didn't acquire a new house within 2 years of leaving the old one, and sold the house to a related person (if you sold it)
- You bought the house in 2008 and checked either the box on line 3c or 3d
- Use the smaller of line 6 or line 7 if:
- You bought the house in 2011, checked the box on line 3f, didn't acquire a new house within 2 years of leaving the old one, and sold the house to a non-related person
- You bought the house in 2008 and checked the box on line 3a
- If you bought the house in 2008 and it was destroyed, condemned or sold under threat of condemnation, you'll need to calculate line 8 differently.
- If you sold the house at a gain to a non-related person, compare the amounts on lines 6 and 7. If line 7 is smaller, divide that amount by nine and write the result on line 8. If line 6 is smaller, divide the amount in line 4 by fifteen and write that result on line 8. This is necessary because in this particular scenario, you're only required to repay as much as you gained from the sale.
- If you sold the house to a related person or you didn't have any gain on the sale, divide the amount on line 4 by fifteen and write the result on line 8. Note that this is the minimum you're required to repay for this year; if you want to pay more, the IRS is perfectly happy with that.
Part III: Form 5405 Gain or (Loss) Worksheet
You'll need to complete this section if the house was destroyed or if you sold it to a non-related person. If you're not sure what amounts to use for lines 9, 10 or 12, consult IRS Publication 523 for help in calculating those figures.
Lines 9-12: You'll use these lines to calculate your profit from selling the house. Line 9 is the selling price of your home, or the insurance proceeds if your house was destroyed. Line 10 is for any selling expenses you incurred (realtor commissions, advertising costs, etc.). Subtract line 10 from line 9 to determine how much you made from the sale. Line 12 is your adjusted basis for the house, which you can calculate using Publication 523.
Line 13: Write down the amount from line 6 in Part II.
Line 14: Subtract the amount in line 13 from the amount in line 12 and write the result here.
Line 15: Subtract the amount in line 14 from the amount in line 11 and write the result here. If the result is less than zero, you don't need to repay the credit.
Submitting Your Form 5405
Form 5405, along with any supporting documentation, must be submitted with your tax return. Seek advice from a tax professional if you have any questions about how to complete the form.