Great, I have been preparing this TP's tax returns for the last 5 yrs EXCEPT 2008 which is the year this TP received the $7500 First Time Homebuyer Credit. Now, TP receives a CP03A letter from IRS about starting to repay the credit. Do I need the TP's 2008 tax return and is so what else do I need from the TP since I didnt prepare this TP's 2008 tax return?
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You don't need the return. The IRS letters that I have seen inform the taxpayers of the amount to be repaid. If they did indeed get a credit in 2008, just fill out page 2 of the 5405 and put in the amount of credit. Your software should figure the amount to repay. If it is a married couple, you will need 2 forms as IRS has allocated half the credit to each spouse. -
The repayment amount will be $500 per year for virtually everyone who took that credit. The 2008 credit was $7,500 and is to be paid back over 15 years by adding the repayment amount to each year's tax return, starting with the 2010 return.
However, if the home is sold at a loss, the unpaid balance of the credit doesn't have to be repaid. There are a couple other qualifying limitations, as well as a little worksheet to figure the forgiven amount. See F-5405 and its instructions.Roland Slugg
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