Recapture of 1st time Homebuyers Credit

[DMICPA]

Thought I would pass this along:

Client bought the home in mid 2009 stayed 21 months and sold the home in 2011.

Took the $8,000 credit on the 2009 return. This does not have to be paid back if you stay in the house 36 months.

Client fell on hard times and sold the home within 21 months. Looks like a complete recapture.

BUT, the recapture is only paid back IF there is a net gain on the home sale. HOWEVER, you must reduce the basis of the home by the $8,000, thereby increasing the gain.

So if the client takes care to list any improvements made it is possible to get out of the entire gain by the time you consider commissions etc. Could save the client $8,000

The transaction goes on page 2 of the 5405.

[Burke]

The only thing is, when a house is only kept 21 months and the owner sold due to falling on hard times, there are not likely to be any improvements. However, selling expenses and a drop in values could work to the TP's advantage in this.
Good points.