Got a FTHC situation and would appreciate any feedback or suggestions. New client purchased home with his spouse in 2008 and took the $7,500 credit that year on the MFJ Form 1040. Client filed MFJ again in 2009 but did not repay any of the credit. Client divorced and filed single in 2010. The home was sold in 2010 at a loss and client did not file 5405 or repay any credit. For 2011, 2012 and 2013, client filed single and did not repay any credit. He shows up for the 2014 filing season without informing me of any of this information and I attempt to file his 1040 without any FTHC information. The e-file was rejected and the message indicated that a FTHC payment should be included with the filing. I guess I should complete form 5405 and show that the home was sold at a loss (Box 3b) and therefore there is an Exception to paying back the credit. I guess the question is, will the e-file be approved by adding the completed Form 5405 to the return? Any thoughts, ideas, suggestions, advice, etc. much appreciated. Hope I didn't leave out any key facts in this summary.
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I can't address your e-file Q, but I invite you to keep the following in mind: The 2008 FTHB credit must be repaid unless the home is sold at a loss (greater than the amount of the unpaid credit). So unless F-5405 is filed, the IRS does not know that the home was sold, at a loss, and the credit is no longer repayable. I believe the correct year to file F-5405 to get the sale on the record would be the year the home was sold, or the year the first repayment installment was due, whichever is later. See the instructions for F-5405.Roland Slugg
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That's my understanding as well. Filing a 2014 Form 5405 to report the disposition that occurred in 2010 seems wrong. I think the taxpayer should amend their 2010 return to add the 5405 on that one. Of course, since the IRS isn't going to process that instantly it doesn't fix the reject on the 2014 return.Originally posted by Roland Slugg View PostComment
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