How To Write A Form 5405: What You Need to Know

by Andria Pacina
Form 5405

If you bought a home before 2010, the IRS offered a first-time homebuyer credit. Unfortunately, this tax credit is no longer given to taxpayers. This is particularly true if the deal closed on or before September 30, 2010.  But if you were among those who bought a home before 2010, you can still claim the tax credit.

To process this credit, you must know how to create Form 5405.  If this applies to you, it’s best that you know what this form is all about. 

Form 5405

How To Write A Form 5405 Repayment of the First-Time Homebuyer Credit

To claim your first-time homebuyer credit, the IRS needs you to know how to draft form 5405. You must also attach your personal income tax return to this form. The form will let you know how much credit you are eligible for. 

Here’s how you can fill out the form:

1. Declare the home’s sale, disposition, or change in usage

In the first section of the form, you will need to be honest in declaring the home’s current status. You need to have stopped using the property as your primary residence. This way, you can be exempted from the mandatory repayment rules. 

On the form, make sure to include the information below:

  • Line 1: Record the date when you stopped using the property as your main home. Have you vacated the premises? Is there no one residing in the property anymore?
  • Line 2: Did you stop using the property as your main home due to the orders of the US government or military? Check this box.
  • Line 3: Line 3 contains some options to qualify to stop making repayments. You need to check the box that applies to you, whether it’s Line 2 or one of Line 3’s options.

If the home was converted to a rental or a business usage, you will need to proceed to the second step.

2. Complete Part II (Repayment of the credit)

After checking the appropriate box on Line 3, you may need to complete the second part of the form. This includes the following:

  • Line 4: When writing form 5405, remember to include the First-Time Homebuyer Credit amount you claimed after purchasing the home in 2008. You will need to enter the correct amount even if the property was condemned or destroyed. If it was also declared under threat of condemnation in 2022 or 2023, you will still need to declare the amount.
  • Line 5: Write down the total value of the repayments you’ve already made on the property.
  • Line 6: Make sure to subtract Line 5 from Line 4 so you can calculate the remaining credit balance.
  • Line 7: If you disposed of your home or sold it, you will need to include how much money you made.
  • Line 8: The IRS has instructions on how to fill up this line on the form. It will let you know how much of your credit you still have to repay. Once you have computed the amount, you will need to input this amount on the IRS Schedule 2 of form 1040.

3. Declare gain on sale or disposition of main home

If you sold your home, this is the part that you need to fill out. You will also need to fill up this section if your home was foreclosed or condemned with a financial award. Otherwise, you can skip this part.

Also, if you sold your home to someone related to you, you won’t need to complete this part. If you sold the home to a company with a 50% or higher ownership stake, skip this. Such transactions won’t require a gain under the First-Time Homebuyer Credit. If you do need to fill out this part, you will need to enter the needed details under lines nine to 15. 

Basically, if you sold your home at a profit, you will need to file form 5405 and pay the balance. Meanwhile, if you lost money on the sale of the property, you won’t need to repay the balance. But you still need to file it after drafting form 5405. 

Free Form 5405 Repayment of the First-Time Homebuyer Credit Template

The good news is that you can easily fill out the form by yourself. You can achieve this with Fill, where you can find a template of form 5405. Another option is to hire a lawyer to help you make sure that you are doing it right. 

Whichever option you choose will require you to provide accurate information so you don’t make a costly mistake.

Form 5405 – Repayment of the First-Time Homebuyer Credit

Using Fill for Submitting Form 5405

To help you in the process of form 5405 creation, you can use Fill’s editor for easy access to the template. You don’t need to learn anything from scratch since the template allows you to fill up the form right away. 

Create an account at Fill today to start editing your documents. You’ll be able to share the form with a lawyer for verification before submitting it to the IRS. 

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