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

Form 5405: First-Time Homebuyer Credit and Repayment of the Credit is a tax form distributed by the Internal Revenue Service (IRS) and used by first-time homeowners or long-time residents of a home to claim a tax credit that is no longer available to taxpayers. However, people who purchased homes before 2010 can still benefit from the tax credit initiative. The Obama administration enacted the federal first-time homebuyer tax credit in 2008. The tax credit was only available for approximately two years and five months—from April 9, 2008 through September 2010.  

First-time homebuyers applying for the credit could not have owned another home within three years of the new home purchase, and either the purchase price of the home or the homebuyer's modified adjusted gross income (MAGI) could not exceed a certain threshold. The amount of the credit was the lesser of either a fixed percentage of the home's purchase price or a fixed dollar value.

If the property the credit was received for was sold within 36 months of the purchase date or if the home was no longer the taxpayer's main home, the homeowner was generally responsible for repaying the full credit.

Key Takeaways

  • Form 5405, First-Time Homebuyer Credit and Repayment of the Credit is a tax form distributed by the Internal Revenue Service (IRS) and used by first-time homeowners or long-time residents of a home to claim a tax credit that is no longer available to taxpayers.
  • The First-Time Homebuyer Credit was only available for approximately two years and five months—from April 9, 2008 through September 2010.
  • When the program began in 2008, the allowable tax credit was 10% of the purchase price of the home up to a cap of $7,500.
  • First-time homebuyers applying for the credit could not have owned another home within three years of the new home purchase, and either the purchase price of the home or the homebuyer's modified adjusted gross income (MAGI) could not exceed a certain threshold.

Who Can File Form 5405: First-Time Homebuyer Credit and Repayment of the Credit?

Form 5405: First-Time Homebuyer Credit and Repayment of the Credit is the IRS form that taxpayers can use to claim a tax credit for a percentage of the purchase price of a new home if the closing took place on or before September 30, 2010. People who purchased homes after 2010 cannot benefit from the tax credit.  When the program began in 2008, the allowable tax credit was 10% of the purchase price of the home, up to a cap of $7,500. The cap went up to $8,000 in 2009. Homes with purchase prices that ranged from $75,000 to $80,000 allowed the homebuyer to claim the full tax credit.

A first-time homebuyer tax credit could provide the taxpayer with a refund even if no taxes were owed, as there was no lower limit on income so a person without an income significant enough to be taxed could still buy a home and claim the first-time homebuyer tax credit.

Form 5405: First-Time Homebuyer Credit And Repayment of the Credit first-time homebuyer tax credit is no longer available; it was available from April 9, 2008, through September 30, 2010.

Form 5405 was attached to the homebuyer's tax return, along with a copy of the settlement statement, which is typically the HUD-1 Form. The form contained all parties' names, signatures, the property's address, the purchase date, and the purchase price. Some types of homes, such as mobile homes, could use other forms of contracts to demonstrate that the property met requirements for the credit.

Qualified homebuyers who purchased a qualified home but did not claim the tax credit on their 2009 returns were encouraged to file an amended 1040X return with Form 5405 attached to claim their credit.

After taking office in January 2021, President Biden announced his intention to give a boost to homeowners by introducing policies that will increase affordability, including a $15,000 first-time homebuyer tax credit.

Form 5405

All pages of Form 5405: First-Time Homebuyer Credit and Repayment of the Credit can be downloaded on the IRS website.

Form 5405 November 2019 Revision

In November 2019, Form 5405 was revised to facilitate repayment of the first-time homebuyer tax credits, which Form 5405 was originally created to facilitate between 2008 and 2010. The repayment requirement continues to apply to homes purchased in 2008. The purpose of the newly revised Form 5405 is:

  • To notify the IRS that the home you purchased in 2008 and for which you claimed the credit was disposed of or ceased to be your main home in 2019. Complete Part I and, if applicable, Parts II and III.
  • To figure the amount of the credit you must repay with your 2019 tax return. Complete Part II and, if applicable, Part III.

Taxpayers must file the new Form 5405 with their 2019 tax return if they purchased the home in 2008 and meet either of the following conditions:

  • The property was disposed of in 2020.
  • The taxpayer ceased using it as their main home in 2020.

Otherwise, Form 5405 isn't required to be filed. For more information and exceptions to filing the revised Form 5405, see the newest set of instructions published by the IRS in November 2020.