Home Selling in 85224>Question Details

Az224seller, Home Seller in 85224

If I received the FTHB credit for a purchase in 5/09, will I be liable to pay it back if I sell the home for less than the IRS adjusted basis?

Asked by Az224seller, 85224 Fri Jul 22, 2011

#1 - I purchased a home in 5/09, receiving the FTHB credit. I must keep the home as my primary residence until 5/12. I am considering a move back east but am unsure of the liability associated with paying back the credit if Isell before 5/12. I've done quite a bit of research and it looks like if I report a loss on the sale of my home (selling price less adjusted basis) that I am not liable to repay. Has anyone dealt with an issue similar to this? Can I work outside AZ, but consider my AZ home as primary home if my wife remains in AZ?

#2 - I have discussed the potential sale with my realtor and she would set a price about $2k less than what I owe; however, I understand that she will need to get paid and the actual proceeds of the sale will be less 3-6% for commission. Does the lender get paid before all others in a sale? What are my options if I placed it on the market for more than what I owe, or what I owe, but I only get offers for less? Renting is not an option due to FTHB cred.

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8
Thanks for all the responses/info.

Some more info: if I move, it wouldn't be on a temporary basis because the eventual goal would be to have us both living in the same place. Yes, I planned to buy another house back east, but come back to AZ every week or so for the weekend. I understand that this would not classify as a permanent resident of AZ and would not be allowed to consider my AZ home as my primary residence, so I think we're at the point where I just need to figure out the FTHB credit issue should we leave before 5/12. We don't have to; we were just curious as to what we would be looking at in terms of options.

I've gone through Form 5405, Gain/Loss Worksheet (from 5405 instructions) and Worksheet 1 from Pub 523 (used to calculate Adjusted Basis) using real basic figures. If I did everything correctly, then I think we're going to be okay. I think the big thing for us is that we made a lot of large improvements (AC, roof, windows, brick wall replacement) to the house the two years we've been there, which significantly increases the Adjusted Basis and we'd be selling it for a little less than what we actually paid for it (guess we should have waited a few more years to buy :) )

The worksheets were fairly straight forward.

Pub 523; Worksheet 1:
purchase price ($160k), less seller paid points (none) and other fees (none), plus additions/improvements ($18k), less depreciation and other decreases ($8000) to arrive at my Adjusted Basis (Worksheet 5405, Line 4) = $170k.

Gain/Loss Worksheet:
I took the estimated selling price (approximately $150k, but it is dependent on multiple factors), less selling expenses. I then subtracted the adjusted basis ($170k), less the FTHB credit ($8K), arriving at a loss of $12k. The Gain/Loss worksheet says that "If line 7 (gain/loss) is -0- or less, check the box on line 13b of Form 5405...". ($12k) is less than 0, so 13b is my option.

Form 5405:
13b states: "I sold (including through foreclosure) the home to a person who is not related to me and did not have a gain on the sale (as figured using the worksheet in the instructions). No repayment of the credit is required. Stop here."

My biggest concern is that I'm missing something. My education background was in accounting, which included taxes, but I haven't worked in that field since I graduated, so I'm a little hesitant to say I'm 100% right.

If I'm not missing anything, then, honestly, given that I'm not planning to be in the home long-term, it's my best option to sell the property, as long as I can get what I owe on the property, paying the realtor with cash.

Thanks again for your thoughts/assistance though. I'll definitely have to look for someone if we are able to make the move and decide to make it.
0 votes Thank Flag Link Fri Jul 22, 2011
Thank you Bill. I thought they had an exemption for job relocation. Thank you for the clarification.

Jose Dias, REALTOR
(623) 418-5700
Jose@MyFirstHouseAZ.com
Realty One Scottsdale
0 votes Thank Flag Link Fri Jul 22, 2011
To Jose's response:

I am afraid the homeowner who gets a job relocation and rents out the house still has to repay the credit. I can't find it to cite right now, but the IRS issued very specific guidelines which state the only people who will be exempt from repayment due to job relocation are Foreign Service employees and military.

Bill Parker, Loan Officer
AZ Lic# 09011570
NMLS #223607
CPA--Licensed, no longer practicing

Legacy Group Lending, Inc.
15333 N. Pima Road, Suite 300
Scottsdale, AZ 85260
(O) 480-993-3080; (M) 602-565-3646; (F) 480-993-3081
EM: Bill.Parker@Legacyg.com
Website: http://www.LegacyG.com

MISSION STATEMENT: To create an unbelievably enjoyable experience for my clients, while guiding them through the most important financial transactions of their personal lives. My clients know me as their Mortgage Lender for Life. I truly appreciate your referrals.

If you think it's expensive to hire a professional to do the job, wait until you hire an amateur.
Red Adair, Oil well firefighter
0 votes Thank Flag Link Fri Jul 22, 2011
I am not a CPA so my response is based on my limited understanding and experience.

#1 - if you report a loss on the sale, it is my understanding that you will not have to repay the loan. In regards to the residency status, I believe no one will be able to give you a definitive answer without knowing more about your specific situation like, is the job back East temporary? are you going to buy another home back East? how much time are you planning to spend here in AZ?

#2 - The lender has to be paid in full. If the proceeds from the sale are not enough to pay the lender, than you will need to get their approval for the transaction first (we call these transactions short sales). If you receive offers for less than what you owe, you typically have two options (1) pay the difference out of pocket; or (2) get the bank's approval for the transaction.

And I would not discard the possibility of renting the property (considering that the numbers work for you). If you are moving to another state because of a job transfer, you may be able to rent the house and not have to pay the FTHB back. I am almost sure that this qualifies as an exception to the rule that you have to live in the house for 3 years. I suggest you check with your CPA.

Good luck!

Jose Dias, REALTOR
(623) 418-5700
Jose@MyFirstHouseAZ.com
Realty One Scottsdale
0 votes Thank Flag Link Fri Jul 22, 2011
Hello Again AZ224Seller:

Another response I got which seems right on point, citing the instructions for form 5405 (dealing with repayment of the FTHB credit): “If you and your spouse claim the credit on a joint return, each spouse is treated as having been allowed half of the credit for purposes of repaying the credit.” – Bill, that sounds like it might be true that if only one spouse moves out, only half of the credit has to be repaid.

Bill Parker, Loan Officer
AZ Lic# 09011570
NMLS #223607
CPA--Licensed, no longer practicing

Legacy Group Lending, Inc.
15333 N. Pima Road, Suite 300
Scottsdale, AZ 85260
(O) 480-993-3080; (M) 602-565-3646; (F) 480-993-3081
EM: Bill.Parker@Legacyg.com
Website: http://www.LegacyG.com

MISSION STATEMENT: To create an unbelievably enjoyable experience for my clients, while guiding them through the most important financial transactions of their personal lives. My clients know me as their Mortgage Lender for Life. I truly appreciate your referrals.

If you think it's expensive to hire a professional to do the job, wait until you hire an amateur.
Red Adair, Oil well firefighter
0 votes Thank Flag Link Fri Jul 22, 2011
Hi Az224Seller:

In regard to your question about a loss upon sale, the IRS website states: You repay the amount of the credit up to the amount of your capital gain. Note: when calculating gain or loss on your main home if you received the first-time homebuyer credit, you reduce your basis by the amount of the credit. See Publication 551, Basis of Assets, for more information.

In regards to your question about you working outside AZ and your wife continuing to live in AZ (I assume you mean in the home being discussed) there is a great deal more ambiguity. One question to be asked is, did you and your spouse buy the home together and therefore, both qualified for the credit? The practicing CPAs I asked, believe that if that is the case, and she is staying in the home, you will be OK. They cite the fact that even a divorce and transfer to a spouse does not trigger the repayment provision. Here is one CPA's input:

"Are there kids? If the kids stay with the spouse in the original home and both spouses maintain that home as their declared residence for purposes of things like driver’s licenses, voter registration, vehicle registration etc. then it MAY still be the primary residence.

On the other hand, if the higher-earning spouse moves to another city to take a permanent job and the lower-earning spouse stays put and there are no kids then it gets a whole lot harder to take the position that the primary residence did not change. If the job is temporary in nature, then arguably the residence did NOT change.

You’re right – I doubt IRS anticipated this one."

This is one you are going to have to pay someone to research further if it comes to that...

Bill Parker, Loan Officer
AZ Lic# 09011570
NMLS #223607
CPA--Licensed, no longer practicing

Legacy Group Lending, Inc.
15333 N. Pima Road, Suite 300
Scottsdale, AZ 85260
(O) 480-993-3080; (M) 602-565-3646; (F) 480-993-3081
EM: Bill.Parker@Legacyg.com
Website: http://www.LegacyG.com

MISSION STATEMENT: To create an unbelievably enjoyable experience for my clients, while guiding them through the most important financial transactions of their personal lives. My clients know me as their Mortgage Lender for Life. I truly appreciate your referrals.

If you think it's expensive to hire a professional to do the job, wait until you hire an amateur.
Red Adair, Oil well firefighter
0 votes Thank Flag Link Fri Jul 22, 2011
You really need to consult an attorney and accountant regarding those issues. No one here has the expertise necessary to give you the kind of advice that you need!
0 votes Thank Flag Link Fri Jul 22, 2011
You should really consult with an Attorney and a Tax Accountant for answers to this question. It sounds like you are considering a Short Sale on the property and these should be your first two stops before you make that decision.
0 votes Thank Flag Link Fri Jul 22, 2011
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