What this line means
The total credit repayment amount added to your tax for the year. If you still own and live in the home, this equals line 4 (the annual 1/15 installment). If you sold or disposed of the home, this is the smaller of the remaining credit balance (line 3) or the adjusted gain on sale (line 6). This amount flows to Schedule 2, line 10, and increases your tax on Form 1040.
Does this apply to you?
- You owe the annual installment payment because you still live in the home
- You sold the home and owe the accelerated repayment based on the remaining balance or gain
- You need the final number to report on Schedule 2 of your Form 1040
Easy to overlook
Certain exceptions reduce or eliminate the repayment on disposition If you transfer the home to a spouse (or former spouse as part of a divorce settlement), the repayment obligation transfers to the recipient spouse — you do not owe the accelerated repayment. Similarly, if the home is destroyed and you purchase a new main home within the replacement period, the repayment obligation continues on the new home rather than accelerating. 1 IRS Form 5405 instructions — Line 7
Death of the homeowner cancels the remaining repayment If the person who claimed the credit dies, the remaining credit balance is canceled. The estate or surviving spouse does not continue the repayment. For married couples who both claimed the credit, only the deceased person’s share is canceled — the surviving spouse continues repaying their half. 2 IRS Notice 2008-106 — First-Time Homebuyer Credit
Watch out for this
Failing to report the repayment on Schedule 2 and Form 1040. Form 5405 calculates the amount, but the actual tax increase happens on Schedule 2, line 10. If you complete Form 5405 but do not transfer the amount to Schedule 2, your tax return understates your tax liability. The IRS cross-checks and will send a notice for the missing amount plus interest.
Footnotes
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IRS Form 5405 Instructions, Line 7. https://www.irs.gov/instructions/i5405 ↩
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IRS Notice 2008-106, First-Time Homebuyer Credit, Death of Taxpayer. https://www.irs.gov/newsroom/first-time-homebuyer-credit-questions-and-answers ↩