What is Form 5405: First-Time Home Purchase Credit and Credit Repayment?
Form 5405: First-Time Home Purchase Credit and Credit Repayment is a tax form distributed by the Tax service (IRS). Taxpayers have used it to claim a tax credit for a percentage of the purchase price of a new home.
This tax credit is no longer available to taxpayers today. However, people who bought a home before 2010 can still claim it, if the closing occurred on or before September 30, 2010.
Key points to remember
- Form 5405, First-Time Home Buyer Credit and Credit Repayment is a tax form distributed by the Internal Revenue Service (IRS).
- It was used by homeowners to claim a now-defunct tax credit for the purchase of a new or replacement home between April 9, 2008 and September 30, 2010.
- The eligible tax credit was 10% of the purchase price of the home, up to a limit of $ 6,500 to $ 8,000.
- Form 5404 was revised in 2019 and is now used primarily by those who must repay their tax credit.
Understanding Form 5405: First-Time Home Purchase Credit and Credit Repayment
The Obama administration enacted the Federal First-Time Home Buyers Tax Credit in 2008. The tax credit was available for approximately two years and five months, from April 9, 2008 to September 30, 2010.
When the program began in 2008, the qualifying tax credit was 10% of the purchase price of the home, up to a cap of $ 7,500. The limit was increased to $ 8,000 in 2009. Homes with a purchase price ranging from $ 75,000 to $ 80,000 allowed the buyer to claim the full tax credit. The amount of the loan was the lesser of a fixed percentage of the purchase price of the house or a fixed monetary value.
In most cases, if the home was sold within 36 months of the date of purchase or if the home ceased to be the taxpayer’s primary residence, the owner was generally responsible for repaying the credit in full.
For people who bought a home in 2008, the loan was more like an interest-free loan of $ 7,500: they had to pay it back in 15 equal installments over 15 years.
Who can complete Form 5405: First-Time Home Purchase Credit and Credit Repayment?
Individuals and married couples were eligible for the tax credit. At first, it was only open to first time buyers—Defined by the IRS as taxpayers who have not owned another home in the three years prior to purchasing a new home. Later, however, the credit was extended to long-time residents if they purchased a new “replacement” main house. The credit for this group was a maximum of $ 6,500, but they generally did not have to repay it.
Neither the purchase price of the house nor the buyer’s price modified adjusted gross income (MAGI) could exceed a certain threshold. However, there was no income floor, so the tax credit could provide a refund to the filer, even if they owed no tax.
Form 5405 was attached to the buyer’s income tax return, along with a copy of the settlement return, which is usually the Form HUD-1. The form contained the names of all parties, signatures, address of the property, date of purchase and purchase price. Certain types of homes, such as mobile homes, could use other forms of contracts to demonstrate that the property met credit requirements.
Qualifying homebuyers who purchased a qualifying home but did not claim the tax credit on their 2009 return were encouraged to file a 1040X return with the attached Form 5405 to claim their credit.
After taking office in January 2021, President Biden announced plans to help homeowners by making purchases more affordable, including a $ 15,000 first-home purchase tax credit.
Sample Form 5405
Information on Form 5405: First-Time Home Buyer Credit and Credit Repayment, as well as the form itself, can be downloaded from the IRS website.
Revision of Form 5405
In November 2019, Form 5405 was revised to facilitate the repayment of tax credits for the purchase of a first home. The purpose of the new, revised Form 5405 is:
- To notify the IRS that the house you purchased in 2008 and claimed the credit for was disposed of or ceased to be your primary residence in 2019. Complete Part I and, if applicable, Part II and III.
- To calculate the amount of the credit, you must repay with your 2019 income tax return. Complete Part II and, if applicable, Part III.
Taxpayers must complete the new Form 5405 with their 2019 tax return if they purchased the home in 2008 and meet any of the following conditions:
- The property was sold in 2020.
- The taxpayer stopped using it as a primary residence in 2020.