FTHB Sold

[Possi]

I think I might have done something wrong...

My client sold her house for which she claimed the FTHB Credit. When the credit reduced the basis, she had a gain and it was reflected on page 2 of the 5405. This total flowed to line 60, was taxed and I thought I was done.

Turns out, I may not be "done" after all. She got a notice from the IRS addressing the sale price of the house.

Should I have included that sale on the Sch D as well? If so, it wouldn't show a gain since the gain was already addressed on the 5405, correct?

Lawd, if it's not one thing, it's a 5405....

Thanks!

[Gary2]

For Sch. D purposes, the client has a non-deductible personal loss. You might think that it doesn't need to be reported (since it's non-deductible), but as Pub. 523 says, if there's a loss and the 1099-S was issued, it still needs to be reported.

If no 1099-S was issued, and their computers are picking it up from the 5405, then ... I don't think their programmers have any hair left to pull out as far as the FTHB Credit is concerned.

[taxea]

You might also want to check on the rules re selling a FTHBC house. There might be some restrictions re time, etc.

[Possi]

Gain from 5405

She had a gain because of the $7500 FTHB credit, and it was properly reported on page 2 of the form 5405. I just didn't think about the matching rule on the 1099s, mainly because I didn't get a 1099s. One must have been issued because that is what triggered the love letter.

So, for the sake of the Sch D, I do not reduce the basis by the $7500 FTHBCredit?

[ChEAr$]

She had a gain because of the $7500 FTHB credit, and it was properly reported on page 2 of the form 5405. I just didn't think about the matching rule on the 1099s, mainly because I didn't get a 1099s. One must have been issued because that is what triggered the love letter.

So, for the sake of the Sch D, I do not reduce the basis by the $7500 FTHBCredit?

Since you mention $ 7,500 I take it that the credit refers back to year 2008? If so, the pay back is indeed reflected on the 5405.

This is a whole separate issue from proceeds from sale of house, and the credit or payback thereof has nothing to do with any gain, taxable or not. But if a 1099S was issued, then yes, it should be reported somewhere on schedule d, and that calls for a paper filing of the return under normal circumstances.

[David1980]

But if a 1099S was issued, then yes, it should be reported somewhere on schedule d, and that calls for a paper filing of the return under normal circumstances.

Why would that be? The paper filing, I mean. Surely it could still be efiled?

[Possi]

Sch D

"This is a whole separate issue from proceeds from sale of house, and the credit or payback thereof has nothing to do with any gain, taxable or not. But if a 1099S was issued, then yes, it should be reported somewhere on schedule d, and that calls for a paper filing of the return under normal circumstances."

Yes, I e-file Sch D's all the time.

I'll prepare a Sch D to attach to the letter and respond with an explanation.

My concern was that the Sch D will be a personal loss (not taken) and the page 2 of the 5405 showed that taxable income generated from the original $7500 Credit. That seems to be conflicting.

I understand now, the $7500 does NOT reduce the basis where the SCH D is concerned.

[okie1tax]

FTHB sold

You do the Schedule D to determine if you have ANY gain. If so you have to pay back the credit to the extent of the gain.

[ChEAr$]

Why would that be? The paper filing, I mean. Surely it could still be efiled?

Drake software rules. Your software may differ.

[taxea]

Drake software rules. Your software may differ.

It isn't the program used that determines whether a return can be efiled...it is the taxing agency.

[David1980]

It isn't the program used that determines whether a return can be efiled...it is the taxing agency.

Well, that's not entirely correct as a software can not support efiling of a specific form or schedule that is actually allowed by the taxing agency. A classic example is the community property allocation record used for filing MFS returns in community property states. The IRS and the states I'm aware of don't require a software efile everything that can be efiled in order to efile anything.

So, it's entirely possible that Drake doesn't support efiling a supported form. But, Schedule D? I can't believe Drake doesn't support efiling tax returns with a Schedule D attached.

[Possi]

Sch D and 5405

You do the Schedule D to determine if you have ANY gain. If so you have to pay back the credit to the extent of the gain.

There is no gain on the Sch D. She lost money on the sale of the house if you don't reflect the FTHBCredit.

BUT the $7500 must be considered when determining whether or not tax will be owed upon the early sale of the house.

So, the Sch D shows no gain, while the 5405 generates tax liability.

[WhiteOleander]

There is no gain on the Sch D. She lost money on the sale of the house if you don't reflect the FTHBCredit.

BUT the $7500 must be considered when determining whether or not tax will be owed upon the early sale of the house.

So, the Sch D shows no gain, while the 5405 generates tax liability.

But you must reflect the FTHBC on the Sch D calc's. If there is a gain, she can exclude it if she meets the requirements, or pay the tax. She pays back the FTHBC based on the amount of gain.

[Gary2]

But you must reflect the FTHBC on the Sch D calc's. If there is a gain, she can exclude it if she meets the requirements, or pay the tax. She pays back the FTHBC based on the amount of gain.

Although I think the results are the same, that's not the way I read the instructions.

The repayment must be shown on Form 5405, not Sch. D. If you think about it, there's no way on Sch. D to indicate the repayment is involved, and the IRS can't reliably match the basis, so this would be bound to trigger a letter. Besides, the 2008 FTHB credit has to be repaid, so shouldn't be a basis adjustment at all.

The repayment must be shown in Part IV of Form 5405. There are two worksheets involved, one in Pub. 523 (the one everyone uses to calculate the adjusted basis on the home for Sch. D), and a second in the instructions for Form 5405 (which subtracts the FTHB credit from the Pub. 523 adj. basis). I think it's a fair bet that you don't subtract it twice.

It won't be until tax year 2012 that people will be able to do a sale without having to do a repayment (other than the exceptional cases). I won't venture a guess on how the new Form 8949 will affect reporting, but I figure the IRS has some time before they have to remind people to deduct the FTHB from the basis for Sch. D reporting.

[Possi]

Although I think the results are the same, that's not the way I read the instructions.

The repayment must be shown on Form 5405, not Sch. D. If you think about it, there's no way on Sch. D to indicate the repayment is involved, and the IRS can't reliably match the basis, so this would be bound to trigger a letter. Besides, the 2008 FTHB credit has to be repaid, so shouldn't be a basis adjustment at all.

The repayment must be shown in Part IV of Form 5405. There are two worksheets involved, one in Pub. 523 (the one everyone uses to calculate the adjusted basis on the home for Sch. D), and a second in the instructions for Form 5405 (which subtracts the FTHB credit from the Pub. 523 adj. basis). I think it's a fair bet that you don't subtract it twice.

It won't be until tax year 2012 that people will be able to do a sale without having to do a repayment (other than the exceptional cases). I won't venture a guess on how the new Form 8949 will affect reporting, but I figure the IRS has some time before they have to remind people to deduct the FTHB from the basis for Sch. D reporting.

"Besides, the 2008 FTHB credit has to be repaid, so shouldn't be a basis adjustment at all."

That is MAINLY why I did not think there would be a gain on the Sch D.
So, would you match the selling value with the basis, since you can't take a loss?