Seller received the initial $7500 first time homebuyer tax credit. She is now upside down and unable to find work and needs to relocate. Who knows, or where can I find information about the consequences to her of repayment of the tax credit if she resells. Also, how will this affect short sellers who received the tax credits in subsequent years?
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Hi Janna:
I just had this same situation on a short sale in California. The repayment is usually $500 per year back to the IRS. She probably received a check for $7500 when she bought her home under the First Time Home Buyer program.
If you short your home due to financial hardship or if you have to move more than 50 miles away from your residence due to employment, the IRS needs to know this.
When your Seller sells her home she will need to send the IRS tax form 5405, which is the First Time Home Buyer Credit and Repayment of Credit form. The IRS will see on this form that she is not receiving any procedes on the sale of her home. She will NOT need to repay the loan for the coming years. The years she has already paid back stay as is. So if she sells this year, she will need to submit this form to the IRS for her 2012 taxes.
I originally thought my seller had to pay it back regardless and I tried to get the Lender on the short sale to pay this off as a junior lien. Since it is not really attached to the house ( it is attached to the Seller and their SS number) the Lender would not contribute. Upon further investigation I found that since it is a SHORT SALE...once she sells she will NOT have to pay back the remaining balance.
Go to the IRs website and you can get info there. I actually called and spoke to an IRS Rep in that department. They were very helpful.
Hope this info helps you and the seller. This is all info based on my Client's situation and the short sale was in California.
Had the same question a few months ago. I spoke to my CPA and he sent me the same form Kevin linked to and advised me that if there is no "gain" on the sale based on your basis (how much money you paid for the house plus any improvements you made that you can document) then you do not have to pay the tax credit money back. I'm a Realtor, not a tax adviser/professional or CPA though so check with your own tax adviser too and advise your client to do the same.
http://www.rmchelp.com/sites/default/files/Repayment%20of%20First%2...
http://www.irs.gov/pub/irs-pdf/f5405.pdf
Great question. Looks like none of us know the answer. Why not run this by a tax pro and come back and educate us?