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). Taxpayers used it to claim a tax credit for a percentage of the purchase price of a new home.
That tax credit is no longer available to taxpayers today. However, people who bought homes before 2010 can still claim it, if the closing took place on or before Sept. 30, 2010.
- Form 5405, First-Time Homebuyer Credit and Repayment of the Credit 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, through Sept. 30, 2010.
- The allowable tax credit was 10% of the purchase price of the home, up to a cap of $6,500 to $8,000.
- Form 5404 was revised in 2019, and is now used mainly by those who have to repay their tax credit.
Understanding Form 5405: First-Time Homebuyer Credit and Repayment of the Credit
The Obama administration enacted the federal first-time homebuyer tax credit in 2008. The tax credit was available for approximately two years and five months—from April 9, 2008, through September 30, 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. 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. The amount of the credit was the lesser of either a fixed percentage of the home's purchase price or a fixed dollar value.
In most cases, if the home was sold within 36 months of the purchase date or if the home ceased to be the taxpayer's primary residence, the homeowner was generally responsible for repaying the full credit.
For people who purchased homes in 2008, the credit was more of a $7,500 interest-free loan: They had to repay it in 15 equal installments over 15 years.
Who Can File Form 5405: First-Time Homebuyer Credit and Repayment of the Credit?
Both individuals and married couples were eligible for the tax credit. At first, it was open only to first-time homebuyers—defined by the IRS as taxpayers who have not owned another home within the previous three years of the new home purchase. Later, though, the credit was extended to long-time residents if they purchased a new main "replacement" home. The credit for this group was a maximum of $6,500, but they generally didn't have to repay it.
Neither the purchase price of the home or the homebuyer's modified adjusted gross income (MAGI) could exceed a certain threshold. However, there was no floor on income, so the tax credit could provide the filer with a refund, even if they owed no taxes at all.
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 help homeowners by making purchases more affordable—including a $15,000 first-time homebuyer tax credit.
Example of Form 5405
Information about Form 5405: First-Time Homebuyer Credit and Repayment of the Credit, along with the form itself, can be downloaded on the IRS website.
Form 5405 Revision
In November 2019, Form 5405 was revised to facilitate repayment of the first-time homebuyer tax credits. 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.