Don't need answers today - next week would be nice

[Catherine]

Former clients now doing their own returns sent an email about a potentially missed first time homebuyer credit from ages ago. Assuming they still have full documentation, and there were one or more payments missed, is it still Form 5405 and flowing from there into Schedule 2? Just pick up where they left off? Penalty abatement or waiver needed for this?

Interesting that in all the years since (way more than 10) they received no letters at all about this. No idea how they found it, either. I told them I couldn't help them until next week. Today will be busy enough dealing with people who are paying me to help.

[Catherine]

and yes, I have links to https://www.irs.gov/taxtopics/tc611 and https://www.irs.gov/forms-pubs/about-form-5405

 

[BrewOne]

A lawyer would probably be talking statute of limitations.  I'm thinking no penalties on taxpayer's reporting of item missing from a filed return, just interest--but that may just be the way things should work.

[jasdlm]

I think that's really strange, because usually if there's a FTHB credit and a 5405 required, the efile will reject (in my experience ... having clients who didn't tell me they took said credit and needed to pay it back).

[Sara EA]

Did your clients sell that first home in the intervening years?  The credit owed is settled up at the sale.  If sold for a loss, it's erased.

[DANRVAN]

On 4/15/2025 at 8:23 AM, Catherine said:

missed first time homebuyer credit from ages ago.

 

On 4/15/2025 at 8:23 AM, Catherine said:

years since (way more than 10) they received no letters at all about this

Are you saying they did not take the credit over 10 years ago, but want to do so now?

Why would they receive any letters?  Maybe I am not following you here.

On 4/15/2025 at 9:36 AM, BrewOne said:

statute of limitations.

Way past if 10 years ago.

[BulldogTom]

On 4/17/2025 at 12:15 PM, DANRVAN said:

 

Are you saying they did not take the credit over 10 years ago, but want to do so now?

Why would they receive any letters?  Maybe I am not following you here.

Way past if 10 years ago.

I think she is saying they got the credit 10 years ago and stopped making the annual payment on their tax returns and now want to pay what they owe.  @Catherine is asking if the 5405 is still a valid form for this and if there is a penalty or interest that needs to be calculated when they pay back the remaining balance due.

The following commentary is about why the IRS did not follow up after all this time if they missed the repayment.

At least that is how I read the OP.

Tom
Longview, TX

[DANRVAN]

2 hours ago, BulldogTom said:

At least that is how I read the OP.

Now I think I get it.

If the FTHB credit was taken in 2008 it must be paid back over the next 15 years.  If taken in 2009 or 2010 no recap.

On 4/15/2025 at 8:23 AM, Catherine said:

Just pick up where they left off?

The only choice I see is to report the unpaid balance on line 10 of Schedule 2.  Decide whether on current year; or the earliest open year and 1040-X forward.

On 4/15/2025 at 8:23 AM, Catherine said:

Penalty abatement or waiver needed for this?

Deal with that when and if it comes.

[DANRVAN]

2 hours ago, BulldogTom said:

asking if the 5405 is still a valid form for this and if there is a penalty or interest that needs to be calculated when they pay back the remaining balance due.

I think you only use 5405 in year of disposition.

You could calculate interest and penalty and include with the unpaid balance due.