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Tax Credits for Individuals

  1. Child Tax Credit
  2. EITC
  3. Form 5405
  4. Foreign Tax Credit
  5. IRS Publication 970
  6. Publication 972
  7. Form 1095-A
  8. ACTC
  9. Bush Tax Cuts
  10. Hope Credit
  11. Non-Refundable Tax Credit
  12. Tax Credit

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Form 5405: First-Time Homebuyer Credit and Repayment of the Credit

Updated: November 25, 2022

In the U.S., there are a variety of tax credits and other benefits that can help you save money every year. If you’re thinking about buying a home, or have recently purchased one, you might be able to take advantage of one of these credits to help offset your costs.

However, the eligibility requirements for these tax breaks tend to be fairly complicated and specific. In this article, we explain some key points about first-time homebuyer tax credits and how they work.

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    KEY TAKEAWAYS

    • The First-Time Homebuyer Credit is a refundable tax credit for eligible taxpayers who purchase a home. You may be able to claim the credit if you’re an eligible taxpayer and meet all the requirements.
    • One requirement is that you must have bought your home in or before 2010.
    • If you sell your home, you may have to repay some or all of the credit.
    • To repay the credit, you must attach Form 5405 to your federal income tax return.

    What is Form 5405?

    Form 5405 is the form you have to fill out to claim a first-time home buyer credit. If you qualify to claim the credit, you’ll have to fill out the form to show the IRS that you are qualified to receive it.

    You must attach Tax Form 5405 to your 1040 tax return when you file in order to claim the first-time home buyer credit. The amount you are eligible for will be on Form 5405.

    It’s important to note that the federal first-time homebuyer tax credit is now defunct. However, it’s still available to homebuyers who bought a home before 2010. Specifically, you needed to close on your home on or prior to September 30, 2010.

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    What Is The Purpose Of Form 5405?

    Tax Form 5405 is a form to claim the first-time home buyer credit. This is an allowable tax credit that goes to taxpayers buying their first home. It helps people who bought their first home with the down payment and closing costs.

    The maximum credit is $8,000, or even more for joint return filers. To claim the full credit amount, homes must have a purchase price between $75k and $80k.

    However, repayment of homebuyer credit applies if they sold the home within three years of buying it. The credit applies to homes purchased after August 9, 2008 and before September 30, 2010.

    Who Can File Form 5405?

    The first-time home buyer credit is only available to people who are buying a home for the first time. If you’ve owned a home in the past, you weren’t eligible for this credit since you weren’t a first-time home buyer.

    This was later revised, however. Long-time owners could claim the credit if they bought a new home to serve as a replacement. The maximum credit capped at $6,500. And in most cases, repaying it wasn’t required.

    Homeowners who got the credit must’ve planned to occupy the home as their primary residence. You could also get disqualified if you filed as a non-resident alien, were in bankruptcy, or if you had an outstanding federal tax liability.

    What Are The Exceptions To Form 5405?

    There are a few exceptions to Form 5405. You don’t have to repay the credit if:

    • You sell your main home for less than the purchase price.
    • The home is destroyed or condemned, and you don’t replace it within two years.
    • You’re divorced and your ex takes ownership of the home (even if they’re not the original buyer).
    • You’re making credit instalment payments on a home bought before 2008.
    • You live in the home for all of 2021.
    • You die, and your estate doesn’t have to repay the credit.
    • It’s a now-defunct tax credit.

    The first-time home buyer credit is a complicated tax break. Like many other tax credits, there are certain rules and exceptions to take into account to determine if you qualify for the credit.

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    How To Qualify For Form 5405

    You have to meet several criteria to qualify for the first-time home buyer credit. You must be a U.S. citizen or resident alien, have purchased a home, and have not owned a home in the past three years.

    Additionally, homes with purchase prices between $75,000 and $80,000 applied. You must plan to use it as your primary residence. You must also pay at least 10% of the purchase price in cash. Finally, you and your spouse must not own another home during the same period.

    How To File Form 5405

    In order to claim the first-time home buyer credit, you’ll have to file Form 5405. You can do this when you file your personal income tax return. You can see how much of the credit you are eligible for on Form 5405.

    You cannot claim the credit on either a 1040 or 1040A tax return. You must file Form 5405 if you’re claiming the first-time home buyer credit. If you’re married, your spouse must also file a Form 5405 if they are also claiming the credit.

    The 15 annual credit repayments are usually divided into $500 instalments.

    Example Of Form 5405

    Here’s an example of what Form 5405 looks like:

    Form 5405: Repayment of First-Time Homebuyer Credit

    Below are just some of the items you’ll need to provide.

    1. Enter the date you disposed of your home.
    2. Whether you gained money on the sale.
    3. Enter how much credit you claimed.
    4. Provide sales price.
    5. Any selling expenses.
    6. Subtract selling expenses from selling price.

    Summary

    Form 5405 is for repaying the First-Time Homebuyer Credit. You must file Form 5405 if you sell your home, gain money from the sale, and meet certain other conditions. The credit is equal to the lesser of the credit amount or the gain on the sale of your home. You generally must repay the credit in equal annual instalments over 15 years.

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    FAQs on Form 5405

    Do I need to file a form 5405?

    You need to file a form 5405 if you’re repaying the First-Time Homebuyer Credit. You must attach the form to your personal income tax return.

    Where can I find form 5405?

    You can find form 5405 on the IRS website.

    What is the IRS first time homebuyer credit?

    The First-Time Homebuyer Credit is a tax credit for eligible taxpayers who purchase a primary residence.

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