The first-time homebuyer credit applies to homes which have been purchased before September 30, 2010. Eligible first-time and long-time homeowners who purchased new homes in 2009 and 2010 can receive a maximum credit of $8,000 and $6,500 respectively, which does not have to be repaid, providing the criteria of the credit continue to be met.
However, all eligible first-time homebuyers who purchased new homes in 2008 and received a maximum credit of $7,500 are required to repay that credit over 15 years. Repayments start 2 years after the credit was claimed.
Repayment is also required if the house you purchased with the credit ceases to be your principal residence before 36 months have passed. This usually means that you have either sold the home or otherwise no longer live in it for the greater number of nights in the year. This also includes converting the property to a rental or business property, or a vacation or second home. In this case, the full amount of the first-time homebuyer credit must be repaid on that year’s tax return, no matter which version of the credit was received.
There are some exceptions. Even if the house you purchased with the credit ceases to be your principal residence before 36 months have passed, you do not have to repay the full amount of the credit immediately if:
* You sell the house to someone who is not related to you. For the tax return in the year of sale, you only have to repay the value of the capital gain on your sale. When calculating the gain, reduce the original value of the house by the amount of the credit. The remainder of the credit has to be repaid as normal.
* You lose the house in foreclosure. The credit must only be repaid up to the amount of gain, if any.
* The house has been transfered to your ex-spouse as part of a divorce settlement. Your ex-spouse is now responsible for repaying the credit according to the repayment schedule. For normally non-repayable credits, your ex-spouse is now subject to the 36-month rule.
* The house has been destroyed, condemned, or otherwise disposed of while under threat of condemnation. You do not have to repay the credit if you acquire a new primary house within 2 years. Otherwise, you will have to repay the credit.
* You die, and you did not file a joint return with your surviving spouse. Neither your surviving spouse nor your estate has to repay the credit. However, if you did file a joint return with your surviving spouse, she is required to repay her half of the credit.
All first-time homebuyer credit repayments use Form 5405. The instructions for the form are available here.