Form 5405
Candlefocus EditorThe Form 5405 provided potential homebuyers with a tax credit of 10% of the purchase price of their home, up to a cap of $6,500. The cap was raised to $8,000 for those who purchased a home in 2009. Repayment of the tax credit was required, and could be claimed over a period of 15 years.
If the full amount of the credit had not been repaid by the end of the 15 year period, any remaining balance was required to be repaid in full immediately. But when the value of the home and the sale price were less than the tax credit taken, IRS does not require repayment of the difference. Credit could also be recaptured in the year of sale when the amount of the tax credit exceeded the gain on the sale of a home.
The 2021 version of Form 5405 has been revised and is used by those who have claimed a tax credit and have to repay the balance or have to file an annual repayment. It includes information regarding the current market value of the home, sales price and calculating the maximum credit amount. The revised version also allows for exemptions for those who have moved house and for those who are considered to be disabled, widowed or belonging to a low-income group.
Form 5405 has been a helpful tool for those who are attempting to purchase and own a home, but have been struggling to do so due to financial constraints. The tax credit is a great incentive to encourage home ownership and to help potential new homeowners ease the pressure of hefty mortgage repayments.