First Time Home Buyer credit from 2008 and house foreclosure

[Bonnie]

Is anyone familiar with what happens when a home is foreclosed that was bought in 2008 and the taxpayer received the first time home buyer credit which that year was essentially an interest free loan of 7500. I find that if the house was sold the taxpayer only pays whatever is above the amount of gain they realized on the sale. I've read some things outside of the IRS site that imply the same applies on a foreclosure. So I'm thinking I am right that they only pay back any gain they had up to the amount remaining that they owe of the 7500. Does anyone know for sure if this is true.

[BP.]

they only pay back any gain they had up to the amount remaining that they owe of the 7500. Does anyone know for sure if this is true.

IRS has an FTHBC Q&A page that says:
"If you lose your home in a foreclosure sale, you repay the credit only up to the amount of the gain."

[DaveinTexas]

Right Track

I believe you are on the right track madam.

A foreclosure is treated as a sale in the IRSSS''' eyes (I never know how to apply the appropriate possessive punctuation of IRS!).

Figure the gain based upon the seller's adjusted basis and remember to subtract from his/her basis the amount of the Credit received and add to basis any improvements made to the property. If the end result is a loss, to the extent of the remaining unpaid credit or greater, then there is no credit to recapture.

If there is a gain, they will repay the remaining unpaid credit (to the extent of the gain) in the year of the foreclosure.

You will notate these figures on the Form 5405 for the tax year in which the foreclosure occurred.

[Burke]

A foreclosure is treated as a sale in the IRSSS''' eyes (I never know how to apply the appropriate possessive punctuation of IRS!).

It's IRS'. Happy writing....

[DaveinTexas]

Thank you!

I do appreciate that indeed!