What this line means
One-fifteenth (1/15) of the original credit claimed on line 1. For filers who claimed the maximum $7,500 credit, this is $500 per year. This is your annual repayment installment, added to your tax liability on Form 1040 through Schedule 2. If you did not sell or dispose of the home during the year, this is the amount you owe.
Does this apply to you?
- You still own and live in the home purchased with the 2008 first-time homebuyer credit
- You are making your regular annual installment payment on the credit
- You have not sold, converted, or otherwise disposed of the home during the year
Easy to overlook
The installment is the same every year regardless of income or home value Unlike income-based repayment plans, the credit repayment is a flat amount. It does not change based on your current income, the current value of the home, or any other factor. For the full $7,500 credit, the installment is $500 every year for 15 years. For a $6,000 credit, it is $400 every year. 1 IRS Notice 2008-106 — First-Time Homebuyer Credit
The installment is not a separate payment — it increases your tax You do not write a separate check for $500. The installment is added to your tax on Form 1040 through Schedule 2. If you normally get a $1,200 refund, the $500 installment reduces it to $700. If you normally owe $300, you now owe $800. Filers who forget the installment are surprised when their refund is smaller than expected or their balance due is larger. 2 IRS Form 5405 instructions — Line 4
Watch out for this
Forgetting to include the installment because you have been repaying for so many years. The repayment started in 2010 for 2008 purchases. After more than a decade of annual installments, filers sometimes forget to file Form 5405 or include the amount on Schedule 2. The IRS sends a notice when the installment is missing from your return.
Footnotes
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IRS Notice 2008-106, First-Time Homebuyer Credit, Repayment. https://www.irs.gov/newsroom/first-time-homebuyer-credit-questions-and-answers ↩
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IRS Form 5405 Instructions, Line 4. https://www.irs.gov/instructions/i5405 ↩