First time homebuyer credit - house sold, 5405 never filed. What now?

[jennifer-walker]

I have a new client this year who has been repaying the 2008 first time homebuyers credit. He sold his primary residence in 2018. I requested the purchase and sales information so I could complete the Form 5405, he told me that the credit was for a home he purchased in 2008 and sold in 2011. The 5405 was never filed and he's been repaying the credit all these years.

I'm not sure how to reconcile this for him. It's looking like he will not have a gain on the sale. As far as I can find I can't go back and amend the 2011 return. Should I fill out the 5405 as if the home was sold in 2018?

I appreciate any insight on this!

[George4Tacks · Accepted solution]

You can certainly go back and amend a 2011 tax return. IRS will likely send you a thank you letter and tell you it is too old to actually assess the tax. You can not just willy nilly stick something into another year.  

[Just-Lisa-Now-]

You'll still be stuck either paying the $500 for 2018 or filing by paper...you wont get it accepted electronically without that 5405 payback included for 2018.

[jennifer-walker]

Thanks. I wondered about the 2011 but everything from IRS says three years, although it does sometimes specify that's for a refund. (I suppose most people wouldn't voluntarily amend a return five years later if there was a tax due.)

Filing by paper is OK this year. My main concern is getting the account straightened out so the same thing doesn't happen next year.

What about the repayments they made from 2011-2017 to the basis? The 2011 Form 5405 asks for repayments made in 2010, which of course is $500, but they've paid $3,000 in additional repayments since then. They should get credit for that somewhere.

[jennifer-walker]

(Ignore that "to the basis" above. Shouldn't be there!)

[George4Tacks]

The whole repayment was due when the home sold in 2011. If they have continued to pay since then, they continued to screw things up. That is why I am suggesting the amended. They could also amend every year subsequent (2012-2017) to get a $500 refund for each of those years and would get it for the open years, but get a "Gee Whiz I am sorry, but your are too late" letter back from IRS.  The good side, you get to charge for all those returns.

I once put a client off until a week after the 3 year statute ran out. It was a several thousand dollar tax credit from some hinky investment scheme. They got a nice "Thank you for filing, but it past the statute date" letter from IRS. The client did not have the money. Everyone in the family had been caught by IRS prior to that and their conscience told them they had to confess. I got paid. They felt better.

[jennifer-walker]

Interesting. Thanks for the input! One last question, will the IRS actually process the 2011 amended return even though it's past the statute date, to clear up the repayment requirement for next year and beyond?

[George4Tacks]

I believe they will. Unless there was fraudulent intent, IRS has 3 years to audit a return. I imagine that there was a change of address for that year. That clearly (to me) indicates that the home that had the credit was no longer being used as a primary residence and that the credit was due to be paid back. I think that the sale of a home was probably reported - Again everything IRS needed to do their job right.  IRS had sufficient evidence to take care of this properly. They dropped the ball. You are just helping them clear up any concerns that they might have.
Alternatively, do nothing. Don't bother with all the paperwork. Maybe file for the open years to get the annual payment back. Those early years are closed. Do 2015 & 2016 & 2017 (gotta hurry on 2015)

[jennifer-walker]

OK, thanks again!