First-Time Homebuyer Credit Repayment Delays Refunds

In 2008, the first-time homebuyer credit was actually a 15-year interest free loan that had to be paid back beginning in 2010. The maximum credit for 2008 was $7,500, which results in a repayment of $500 for most taxpayers.

There were three situations related to the repayment that IRS did not allow for in their processing procedures: 

1. Credit Repayment from a Joint Return - If the original credit was allowed on a joint return, half of the credit is treated as having been allowed to each individual filing the return for recapture purposes. (Code Sec. 36(f)(5)).  Thus, the IRS is looking for the repayment from each individual spouse and, if the repayment was combined on a single form 5405, it created a problem in processing.  For those that have already filed using only one form 5405, the IRS is manually processing the returns and should have this issue cleared up around April 6.

2. Credit Repayment as a Result of the Sale or Disposition of a Home – See explanation provided below.


3. Credit Repayment is More Than Required - The second and third issues require changes to IRS’ core tax processing systems.  They are actively working on the development and testing of the required changes that will allow us to process these impacted tax returns and issue refunds.  The IRS does not currently have a definitive date for when these changes will be complete, although it will be in April.   


What Should Taxpayers Do?

For those who have already filed, no action is necessary.  They can check “Where’s My Refund” on the IRS website for updates.  Because the IRS is already aware of this issue and is taking corrective action, there is no need to call.


For those who have not yet filed and are making a repayment of a First-Time Homebuyer Credit this year, there is a simple step taxpayers can take to help speed processing.  Couples filing a joint return for tax year 2010 who received the credit on their jointly filed 2008 tax return should file two 5405 forms, one for each taxpayer.  For couples filing a joint return for 2010 but who had a different filing status in 2008 and only one spouse received the credit, the IRS recommends filing one Form 5405 for the taxpayer who received the credit.  

  • Lee Reams Sr.

  • Lee T. Reams is the Chief Technical Officer of ClientWhys. He is also an Enrolled Agent having managed a 600-plus client tax practice. Educated as an engineer, with a Bachelor's Degree in Mechanical Engineering, Lee left his engineering career in 1975 to expand his part-time tax practice into a full-time career.

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