What this line means
The gain from line 5 adjusted for any applicable factors that affect the credit repayment amount. For most filers, this equals the gain on line 5. The adjusted gain limits the accelerated repayment — you do not repay more than the gain on the sale. If you sold the home at a loss (gain is zero), the repayment is limited to zero.
Does this apply to you?
- You sold the home purchased with the 2008 first-time homebuyer credit and had a gain
- You need to determine whether the gain limits the amount of credit you must repay
- You are calculating the repayment amount due on disposition of the home
Easy to overlook
Selling at a loss can eliminate the remaining repayment entirely If you sell the home for less than your adjusted basis, the gain is zero. Because repayment is limited to the gain, a zero gain means zero additional repayment for the year of sale. The remaining credit balance is forgiven. Filers who sold during the housing downturn and had no gain owe nothing beyond what they already repaid in prior installments. 1 IRS Form 5405 instructions — Line 6
A small gain limits repayment to less than the remaining balance If your remaining credit balance (line 3) is $3,000 but your gain on sale is $1,500, you repay only $1,500 — the smaller of the gain or the remaining balance. The other $1,500 is forgiven. This gain limitation protects filers who had modest appreciation and would otherwise owe more in credit repayment than they profited from the sale. 2 IRS Publication 523 — Selling Your Home
Watch out for this
Assuming the full remaining balance is due regardless of the gain. The repayment on disposition is the smaller of the remaining credit balance (line 3) or the gain on sale (line 6). If the gain is smaller than the remaining balance, the repayment is limited to the gain. Always compare both amounts before entering the repayment on line 7.
Footnotes
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IRS Form 5405 Instructions, Line 6. https://www.irs.gov/instructions/i5405 ↩
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IRS Publication 523, Selling Your Home. https://www.irs.gov/pub/irs-pdf/p523.pdf ↩