Couple sitting in kitchen

If you were a first-time home buyer between April 8, 2008 and January 1, 2009, you might recall taking advantage of The Housing and Economic Recovery Act of 2008 that allowed eligible homeowners to utilize an interest-free loan equal to 10% of the purchase price of a home (up to $7,500).

The First-Time Homebuyer credit was an incentive by Congress to boost housing sales in a time when the Great Recession made it difficult to purchase a home. Those who took advantage of the credit are required to repay the government in equal installments over 15 years for the amount received.

If you’ve started paying the piper in the form of your tax returns, we’ve got everything you need to know about repaying the 2008 credit.

How Do I Repay the Credit?

Essentially, if you claimed and received the one-time credit on your income tax return for 2008, you must repay the credit. It is repaid as an additional tax on your tax return, and you’ll be paying it back every year for a total of 15 years.

To clarify, if you qualified for the maximum credit of $7,500, this means you’ll pay a yearly loan payment of $500 until the loan is repaid in full.

One way to ensure you can afford to pay the credit every year is to list an additional withholding in your paycheck. If you get paid biweekly, you can ask your employer to withhold an additional $20 per pay period, adding up to an extra $520 at the end of every year – a little more than you’ll need for the repayment on a loan for the full credit amount.

When you’re making a first-time home buyer credit repayment, you’ll use a 5405 tax form, adding the amount you have to repay to any other tax you owe on your federal tax return. There are special rules for repaying the credit if the home stops being your main home. We’ll talk more about that later.

How Do I Know How Much I Owe on My Tax Credit?

If you’re looking for the remaining balance of your tax credit, visit the First Time Homebuyer Credit Account Look-Up to retrieve the balance of your credit.

You’ll also be able to view the amount you paid back to date, as well as the total amount of the credit you received.

In order to review your tax credit information, you’ll have to provide the following:

  • Social Security number or Individual Tax ID Number (ITIN)
  • Date of birth
  • Street address
  • ZIP code

What If I Miss a Tax Credit Repayment?

If you don’t pay your first-time home buyer tax credit, it’s essentially as serious as not paying your income tax and is handled accordingly by means of added interest or possible penalties.

Long story short: Don’t miss a payment.

Do I Need to Repay the Credit If My Home Stops Being My Primary Residence?

If your home remains your primary residence, you are required to repay the credit in equal payments over 15 years with no interest charged.

However, if you move or sell the home, it will no longer be considered your main home. You may need to repay the entire unpaid credit in one lump sum.

According to the IRS, a home is no longer considered your main home when:

  • You sell your home
  • You transfer the home to a spouse or former spouse in a divorce settlement
  • You convert the entire home to a rental or business property
  • You converted the home to a vacation or second home
  • You no longer live in the home for the greater number of nights in a year
  • Your home is destroyed or condemned
  • You lose your home in foreclosure
  • You die

If the home is no longer your main home, you must repay the entire remaining part of the credit on your next tax return. The only exception is if your home is destroyed or condemned and you buy a replacement home within two years; then, you can continue to repay the credit in annual installments.

How Can I Get Out of Repaying the 2008 Credit?

Unfortunately, there aren’t a lot of options for getting out of it. Here are the only listed exceptions to not having to pay the credit back in full:

  • You get a divorce and your ex-spouse gets the house. You don’t have to pay it back, but your ex-spouse does.
  • If you or your spouse is in the military and your house was sold due to service-related relocation, you don’t have to repay the credit.
  • If you lose your home in a foreclosure sale, you repay the credit only up to the amount of the gain.
  • If you die. However, if you claimed the credit on a joint return, your surviving spouse pays only his or her half of the remaining credit repayment amount.

As you can see, there’s not much you can do to get out of repaying the tax credit. The best thing you can do is just make sure you’re making the payments every tax season until the full amount is repaid.

Is It Possible to Repay Only a Portion of the Tax Credit?

While it’s harder to get out of paying back the tax credit altogether, there is a way that you might only have to repay a portion. Let’s dig in.

If you sell your main home to an unrelated person or entity, you repay the credit only up to the amount of gain on the sale.

Let’s say the purchase price of the house was $200,000. You subtract the amount of the tax credit (let’s say $7,500), to get your net cost of $192,500. Any money gained from the sale of the house (difference between the sale price and your net cost) is what you’ll be responsible for paying back.

So, if you sold your house for $195,000, you’d be responsible for paying back $2,500 total ($195,000 minus $192,500). That’s a little better than the full $7,500.

How Do I Claim the Credit on Tax Returns?

In order to claim this tax credit on your tax returns, you must:

  • Use IRS Form 1040 to claim the credit
  • Attach IRS Form 5405
  • Attach documentation showing the purchase of the home between the applicable dates
  • File a paper, not electronic, return

Additionally, you must attach your regular wage tax statement (W-2, W-2G or 1099-R, as applicable) and mail to the appropriate IRS office.

Do you have any questions about the tax credit? Let us know in the comments below!

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This Post Has 25 Comments

  1. In 2008 I had a house under land contract and when I filed my taxes, the tax preparer put that credit on my tax return. …was that legal and I lived there for a year before it went back to the holder of the land contract

    1. Hi Sir:

      I think you’d better talk to an accountant or someone specializing in tax law. Under a land contract, you don’t own the house right away. In fact, you never owned it. I would talk to a tax professional about what qualifies for the credit. You could also talk to the IRS at (800) 829-1040.

      Thanks,
      Kevin

  2. I purchased a home in 2008. Had a two different CPAs do my taxes over the past ten years. They didn’t ask and I completely forgot about this credit. Not sure if I even knew it had to be repaid, idk. This year I bought TurboTax and that question was on there. I couldn’t remember but the link said I did get like $3200. The IRS never said anything. I totally forgot. CPAs didn’t mention it. Now what do I do? Planning on selling it this year. Thanx

    1. Hi Jody:

      I really think it’s best if you talk to a tax advisor or the IRS. You can get in touch with them at (800) 829-1040. You may just be able to pay back any past due amounts because it’s like an interest-free loan. The full balance is due on your next tax return when you sell the house.

      Thanks,
      Kevin

  3. Me and my ex husband received the first home buyer tax credit. We are now divorced and he kept house and has since refinanced it and took my name off. He pays the 500 payment every year but when I file my income tax it keeps showing up I owe it. How and who can I contact so it will not effect me anymore??

    1. Hi Robin:

      I would advise contacting the IRS and seeing what you have to file to show you’re not on the loan or the title anymore. The individual phone number for the IRS is (800) 829-1040.

      Thanks,
      Kevin Graham

  4. I moved out of the home in 2014. Some how I was able to continue to pay the 500 dollars for two years. I am paying the remaining balance of 3500 dollars this year. Are they going to hit me for interest??

    1. Hi Joseph:

      That’s a good question, but one I cannot answer. I would talk to a tax professional about this one in and see how this normally works. I wish you luck!

      Thanks,
      Kevin Graham

    1. Hi Sam:

      We aren’t tax professionals. However, I can suggest you get in touch with the IRS at (800) 829-1040. They would be able to answer any questions you might have.

      Thanks,
      Kevin

  5. Here is our situation. We bought a house and received the First Time Homebuyer credit in 2008. We sold the house in 2016 and owed $2922 of it after filing our taxes. We are paying in monthly installments. I just filed our 2017 tax return and we are supposed to receive a $4000 refund. Will the IRS tax the rest of what we owe from the 2017 return?

    Also, I logged on to figure out how much we still owe on the credit. The information was confusing. The last statement says “Total balance left to be paid: $-780”. It makes me think that we overpaid but I cannot see how that could have happened. Any insight here?

    1. I’m not a tax preparation expert, but if you did still have to pay money back, it makes sense to me that this would be taken out of any applicable refund. However, a negative balance does make me think you should be getting money back. I would talk to someone that does this for a living to be sure.

      Thanks,
      Kevin

  6. Here’s my situation. My ex-husband and I purchased a home in Dec. 2008 (literally 5 days too soon to not pay back this thing).

    We have now been divorced for 4 years, and I remarried, moved, and now rent out the home.

    In the divorce I got the home, and he got our other rentals. But I’ve never been able to get the house in my name- it is still listed in both our names. He is the primary borrower on the loan and listed first on the deed. We did our own divorce and nothing is in writing saying I have to have the home in my name only.

    Now, I need to pay 4k to pay the remainder of the first time home buyer credit. (I’ve paid the 500 by myself for the past 4 years).

    Since he is still legally an owner, does he owe half the 4k? And does he also need to back pay me half of the 2k I’ve paid for the past 4 years?

    I’ve already paid the taxes, but our CPA made a mistake and we must amend the return, so I thought maybe he could change the payment of the tax credit in the same amendment (assuming that my ex-husband does have to pay half).

    Thanks!

    1. That would be between the two of you. Since you have no formal arrangement regarding the divorce, you would have to work it out with him. Since you are both on the title, that’s one way of doing it.

      Thanks,
      Kevin Graham

  7. I just sold my 2008 purchased home recently. Aprox. 2 years after the purchase I became disabled and began to collect disability payments. I managed to keep the home by juggling money and selling my beloved mechanic tools. The home was a show place. A diamond in a goats ass I guess you could say considering the development it was located. I needed to make it a showplace in order to sell it to cover the years I was moving from one credit card to another to fix it up and just afford to keep the lights on. I sold it for much more than the original purchase price and almost enough to pay everything off. I just did my taxes and have to pay back almost 3 grand on the “FIRST TIME HOME BUYERS TAX CREDIT”. Lovin it. Anyone think a nice letter to the IRS asking for more time to pay would help? Has anyone just tried to ask for a loan extension from them rather than just crying about why do we have to pay it cause they didn’t. I know I sound ruff but hey, A DEAL IS A DEAL and we made it.

    1. Hi Kevin:

      Sounds like you’re in a tough spot. Unfortunately, the best advice I can give you is to contact a tax adviser. Good luck!

      Thanks,
      Kevin Graham

      1. My question is, when I get a refund on my taxes, can that go to pay the $500?? I am self employed. I am a Courier. I drive about 60,000 miles a yr. I write those miles off and always never owe any federal taxes, I always have a plus. I don’t get the plus money refund, but if I did owe the IRS, it can go towards what I owe. But my tax lady says, even though I show a plus on my taxes, I cannot use that to pay on my first time buyers loan. She said it’s a loan, not taxes I owe. But when I get my paper from the IRS, it says ” I didn’t pay the additional federal tax i owe”. I called the IRS and asked them, the lady could not answer my question. But she did say, she did not see any difference. If I owe, I should be able to use my plus “refund” to pay. She connected me the the “accounts” dept and when they finally answered, the call hung up. Now I have no clue who to call. It’s so hard to get through to anyone there. Any help would be greatly appreciated. Thank you. Randy.

        1. Unfortunately, I’m not that familiar with tax law to be able to tell you the difference. I would get a second opinion from another accountant. That being said, you’re going to get a refund check back and if you were to send the money right back to them, I have a feeling they wouldn’t care where it came from.

  8. Any updates or progress in Washington on this silly rule that punishes 2008 homebuyers, but not 2009 or 2010 homebuyers when the house is sold in 2015?

  9. I bought my first house in Oct, 2008. No one told me about the payback…..realtor, lender, friend, neighbor….no one. I was 61 years old at the time and bought a “repo” that needed a LOT of work, which I took advantage of the credit for. I’m almost 66 now…out of work….Social Security will start for me at 66. Where in the world am I going to find that payment every year? THAT LOAN may just cost me the house eventually. Maybe I should change my citizenship to that of a third world country……the USA would certainly help me out then!!!

  10. I currently as of 2-24-12 have a petition online to be signed to “Abolish the first time home buyers tax credit payback of 2008” Please direct people to facebook for the petition. It will go to Washington as soon as I have 50 votes and I have nearly 40 now. This concerns myself and t housands of people who are being treated unfairly with this “credit”. Also you can find the petition on No Labels.com. Thank you

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