First Time Homebuyer Credit - (thought this one had died)

[Ray in Ohio]

Client claimed the "First" FTHB credit in tax year 2008. This the $7500 credit that has to be re-paid over the next 15 years. Apparently in 2013 the bank foreclosed on the home and the taxpayer ended up selling the home for a loss. (like a $50,000.00 loss)

http://www.irs.gov/pub/irs-pdf/i5405.pdf

My first question is, does the TP have to repay the remaining balance of the $7500 that had not been repaid? They had paid $500/year in 2010, 2011, 2012.

The second issue arising out of this: The bank issued a 1099-C (Cancellation of debt) to the tune of $72,000 plus. I have not dealt with a lot of COD issues. It seems in a quick reading of some regs, that if the COD is for a main home it is not a taxable event. I guess I would be looking for some confirmation if I am reading things right.

My head seems to be spinning this week and the more I try to rapidly read IRS regs, the more confused I get.

Thanks for any thoughts and ideas!!

[mcb39]

Use Form 982 to report the COD of personal home. It will not be taxable. I don't know the answer to the FTHB credit, but there is a worksheet somewhere. I just don't have time to look for it right now.

[Terry D EA]

I agree there is a worksheet that addresses all of your questions. I think it is tied to the 5405 form. Like Marilyn, I don't have time to look into it either but see if you get any leads with the 5405 form. I am not using ATX this year so I don't know if a worksheet exists in their software. Common sense says it should. Good Luck!

[joanmcq]

There is a checkbox on the 5405.

[Pacun]

You will kill the 1099-C with form 982 and you will not continue repaying the loan because the house was sold at a loss, but you have to use the form to let them know. You still need to report the sale to be on the safe side and to justify the repayment stoppage.