You Got the Tax Credit When You Purchased in 2009/2010 - What Happens When You Sell?

Repaying the Credit


Q. When must I pay back the credit for the home I purchased in 2009?


A. Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009 or early 2010. The obligation to repay the credit arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.

Q. If I claim the first-time homebuyer credit for a purchase in 2009 or early 2010 and stop using the property as my principal residence before the 36 month period expires after I purchase, how is the credit repaid and how long would I have to repay it?

A. If, within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full amount of the credit is due at the time the income tax return for the year the home ceased to be your principal residence is due. The full amount of the credit is reflected as additional tax on that year's tax return. Form 5405 and its instructions will be revised for tax year 2009 to include information about repayment of the credit.

Q. When does my home stop being my main home?

A. Here are examples of when your home stops being your main home:

     1.  You sell the home.
     2.  You transfer the home to a spouse or former spouse in a divorce settlement.
     3.  You convert the entire home to a rental or business property.
     4.  You converted the home to a vacation or second home.
     5.  You no longer live in the home for the greater number of nights in a year.
     6.  Your home is destroyed or condemned.
     7.  You lose your home in foreclosure.
     8.  You die. 

Q. When do I have to repay the credit?

A. You repay the full or part of the credit as an additional tax on your tax return when the home stops being your main home during the 36-month period following the date you purchased your home.

     You must repay the full credit when:

     1.  You sold your main home to a related person or entity
     2.  Your home is destroyed, condemned or disposed of under threat of condemnation and you do not purchase or rebuild a replacement home within two years.   
     3.  You converted the entire home to a rental or business property.
     4.  You converted the home to a vacation or second home.
     5.  You no longer live in the home for the greater number of nights in a year.

     You may have to repay the full or a part of the credit when:

     1.  You sold your main home to a non-related person or entity.
     2.  You repay the amount of the credit up to the amount of your capital gain. Note: when calculating gain or loss on your main home if you received the first-time homebuyer credit, you reduce your basis by the amount of the credit. See Publication 551, Basis of Assets, for more information.
     3.  You lost your home in a foreclosure.You must repay the credit only up to the amount of gain. 

Divorced Persons

If you (transferor spouse) transfer your main home to a spouse or former spouse (transferee spouse) under a divorce decree, the transferee spouse who keeps the home is responsible for repayment of the entire credit if, during the 36-month period after the purchase of the home, the home ceases to be his or her main home. You (transferor spouse) are not responsible for any repayment of the credit.

Source:  http://www.irs.gov/