What this line means
The amount of the original first-time homebuyer credit that you have not yet repaid — line 1 minus line 2. This balance decreases by one installment each year. If you sell the home or it stops being your main residence, the remaining balance (or a portion of it) becomes due immediately rather than continuing in annual installments.
Does this apply to you?
- You are tracking the unpaid portion of your 2008 first-time homebuyer credit
- You need to know how much credit remains to be repaid over the remaining years
- You sold or disposed of the home and need to determine the accelerated repayment amount
Easy to overlook
The repayment schedule ends after 15 years (tax year 2023 for 2008 purchases) If you claimed the credit in 2008 and have made every annual installment since 2010, your 15th and final payment was for tax year 2024 (filed in 2025). After 15 installments, line 3 reaches zero and you no longer file Form 5405. Check your repayment count — if you have completed all 15 installments, you are done. 1 IRS Form 5405 instructions — Line 3
Certain disposition events accelerate the entire remaining balance Selling the home, converting it to a rental, or transferring it (other than to a spouse) triggers immediate repayment of the full remaining balance. The balance on line 3 becomes due as additional tax for the year of the disposition, subject to the gain limitation on line 6. 2 IRS Form 5405 instructions — Disposition rules
Watch out for this
Continuing annual installments after selling the home. Once you sell or dispose of the home, the remaining balance is due in full for that tax year (limited by gain on sale). You do not continue making $500/year installments after a disposition. File Form 5405 for the year of sale showing the accelerated repayment and stop filing the form in subsequent years.
Footnotes
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IRS Form 5405 Instructions, Line 3. https://www.irs.gov/instructions/i5405 ↩
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IRS Form 5405 Instructions, Disposition of Home. https://www.irs.gov/instructions/i5405 ↩