Time to Start Paying Back the $7500 First-Time Homebuyer Tax Credit

Remember back in 2008/2009 when the federal government was trying to stimulate the housing market by handing out an income tax credit to first-time homebuyers? As you may recall, these “credits” came in two flavors. The first was essentially an interest-free loan worth up to $7500 that ultimately had to be paid back – nice credit, huh? Shortly thereafter, the homebuyer tax credit was bumped up to $8000 and the repayment requirement was dropped.

Well, guess what? If you took advantage of the original $7500 version of the first-time homebuyer tax credit, it’s time to start paying it back. Repayment is to be made in 15 equal annual installments starting with your 2010 income taxes. To make the payment, you’ll need to file IRS Form 5405 – coincidentally, this was the same form you used to claim the credit in the first place.

If you’re affected by this, you’ve probably already received “Notice CPO3a, Repaying your First-Time Homebuyer Credit, ” listing the amount you have to re-pay. If you haven’t gotten this, or if you’ve misplaced it, then simply divide the total amount of your credit (you can look it up on your old tax return – you kept a copy, didn’t you?) and divide by 15. For those that qualified for the full credit, that works out to a repayment of $500/year.

Note that the 15 year “recapture period” only applies if the home you purchased continues to serve as your main home. If you convert your to a rental property or a second/vacation home, then you’ll need to pay the full unpaid amount on your next tax return. And if you sell your home to a third party, you have to repay the amount of the credit only up to the amount of the gain on your sale.

Other exceptions include the following:

  • If you transfer your home as part of a divorce settlement, the spouse that keeps the home is responsible for the remaining repayments.
  • If your home is destroyed or condemned and you purchase a replacement within two years, you’ll need to continue making repayments going forward.
  • If you lose your home in a foreclosure sale, you’ll need to repay the credit up to the amount of your gain, if any.
  • If you die, no further payments are due.

I’m not sure about you, but we bought our home back before the homebuyer credit was introduced, so this doesn’t apply to us. If it applies to you, be sure to be familiar with all of the repayment details – especially the possibility of having to make a lump sum repayment if you sell your home.

18 Responses to “Time to Start Paying Back the $7500 First-Time Homebuyer Tax Credit”

  1. Anonymous

    if this wasn’t filed in 2010 for repayment because I wasn’t asked to and didn’t know anything about it,now it’s 2015 and I have been told to start paying 500 will they go back and add the past 4 years all at once?I hope not.it wasn’t my fault I knew nothing about the repayment in 2010.please help!

  2. Anonymous

    What they dont include is the ‘gain’ is anything above the purchase price minus the rebate. A gain is the difference of the two, example a $100,000 home, minus the rebate. So if you sell your home for more than $92,500 (100,000-7,500) contract price, that is considered a gain and you still owe the rebate back. After 3 years of mortgage, I guarantee that no one has paid over 7,500 in principle and can sell the house at that much of sales price loss and come out ok.

  3. Nickel

    Mike: You are only required to repay the credit to the extent that you sell for a gain – in which case it should be know problem to pay it back.

  4. Anonymous

    Yes, there is a delay in processing these returns. Pathetic, may have been too strong, but apathetic or indifferent fit well.

    @ Nick: The $7,500 will have to be paidback. If you sell, you will have to repay the loan as you file your next federal tax return. It won’t impact the settlement, but you will most definitely feel it at tax time.

  5. Anonymous

    I closed on my house Halloween of 2008. I took advantage of the $7500. My question is will the 7500 count as a gain when I go to sell the house regardless if I just get what I paid for it. Things have changed and I need to get out from under it butI dont want to sell for a major loss. Anybody have any feedback?

  6. Anonymous

    I took the $7500 and did the paperwork to give them back the $500 due this year. Guess what? The IRS is unable to process the form correctly, after having TWO YEARS to get ready for it. So the rest of my entire refund is held hostage to their incompetence.

    By contrast, my Colorado tax return was filed and refund received…in three days.

    IRS pathetic? Yes.

  7. Anonymous

    Nobody is discussing the ramifications that some people cannot sell their house due to the combination of the payback and the lack of home appreciation. I am now stuck in my house for a few years at least.

  8. Anonymous


  9. Anonymous

    Great information. I wonder how many home buyers were caight off guard because they didn’t realize they were going to have to pay this back. Thanks for sharing.

  10. Anonymous


    I also had to pay back the $500 this year. I filed in mid february and got my return in about 2 weeks.

    I’m thinking your information about the “pathetic IRS” might be incorrect.

    I purchased on April 17 and thus did not even know about this program when I purchased. I took the $7,500 and when I got the money I applied it towards my principle – yes GREAT program!

  11. Anonymous

    The $7500 with repayment was still a good program if you were already in the market and I’m sure it helped many people get into a home years earlier than they originally anticipated. The fact that they upped the ante by removing the repayment doesn’t take away from that.

    The reason the program was changed was because it wasn’t stimulating the kind of home sales they were hoping for. I’m not convinced that it helped the economy very much and it cost quite a bit of federal money, but that didn’t stop me from taking advantage. I was planning to buy a house within the next few years anyway, this just moved up the time-table. It was designed to bring more home-owners into the market, but I’m afraid in many cases it just prodded future homeowners into the market a couple years earlier.

  12. Anonymous

    @Hector: the program was enhanced as the housing market was collapsing and was trying to increase demand.

    I bought and received the first credit (interest free loan), and have made the first installment as part of my tax return.

    One thing not mentioned in this blog is that there was a delay in processing itemized claims as the IRS was programming code to account for this. There is a further delay in processing returns for this specific issue. We have been told that claims will be processed by mid April. We efiled mid February. Pathetic IRS.

  13. Anonymous

    Wow! I was in college back when this program was introduced. I’ve graduated college since but I was unaware of the first option being required to be paid back.

    Do you know why the credit was increased to 8K later and the repayment option was dropped? Furthermore, why weren’t the people that opted for the first option grandfathered into the benefits of the section option (no repayment)?

    Part of me want to know out of curiosity and the other part want o know because if I was one of those people I would have been really upset!

    The again, that’s what happens when you depend on the federal government for anything.

  14. Anonymous

    I also purchased my house in late 2009 and waited until 2010 normal filing to claim the credit. Hopefully I won’t get any runaround of the IRS trying to make me repay the credit. I have not submitted my tax returns yet for this year. I should owe about $700 so if they ask me to repay $500 that would make for a pretty rough tax day. I planned months in advance for the $700 so that won’t be a problem.

  15. Anonymous

    I purchased my house in 2009, and took the 2009 credit. I have been in IRS hell trying to get them to update my account so that I don’t have to pay it back. As of now, the IRS keeps rejecting my federal tax return from being submitted, but the accounts department has said it is updated correctly.

    The 8K was great, but the headache it is causing now sure does stink.

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