Form 5405

[KCAC816]

My husband and I filed a joint tax return for the first time for the 2022 tax reporting year.  We have received a notice that was only addressed to my husband from the IRS stating that they received our return but need more information to process it.  They requested that he complete form 5405 and complete line 1 of the form.  Line one states when did you dispose of the home.  This form is for the first time homebuyer tax credit.  I received a tax credit when I purchased my home in 2008.  I was single and not married at the time.  I did not get married until 2022 to my husband.  I have been repaying the credit since 2010 in yearly 500 dollar payments tot he IRS.  From what I understand when repayment is made, the tax preparer completes line 10 of the schedule 2 and the form 5405 is not necessary unless you dispose of the home.  My tax preparer completed the form 5405 with our return, however I have not sold the home.  I still own it.  So I am not sure why he completed the form.  We had a house built which was completed and closed on in October of 2022, but we did not move in the new home until 2023.  We still used the home for which I received the credit as our main home in 2022.  I don't know what to send them in response.  Do they need form 5405 even though I still own the home and it was our home all of 2022.  And if they don't need the form do I send them an amended return?  Also can I pay the remaining 1000 balance off at once so this is no longer a problem when we file our return in the future?

[rjs]

You should bring a copy of the IRS letter to your tax preparer and have the tax preparer write a response for you, including any forms that have to be sent with the response. Depending on the tax preparer's credentials and level of expertise, he or she might be able to handle the correspondence with the IRS as your representative.

[TomD8]

"My tax preparer completed the form 5405 with our return, however I have not sold the home.  I still own it.  So I am not sure why he completed the form."

I agree with @rjs that your tax preparer should correct the situation.  Have you asked him/her why they completed Form 5405?

[Opus 17]

Because you used a preparer, I agree the preparer should fix this.

For 2022, you should not have included form 5405, you should only have made a payment on line 10 of schedule 2.  You would need to look at what the 5405 actually says--did the preparer say the credit was transferred to the new spouse (that would be incorrect).  I can't think of anything else the preparer would have said on that form.  You simply owe $500 because you got the house as a single person and that responsibility is not transferred to your new spouse.  

Because you stopped using the home as your main home in 2023, you are supposed to file form 5405 with your 2023 tax return, that will report you moved out of the home.  Assuming you sold the house for more than you paid, the remaining credit balance will be due in full when you file your 2023 tax return, and that will close out the issue for you.  (If for some reason you had a loss on the property, the remaining credit balance may be forgiven, it depends on how the math works out and what kind of loss you had.)

[KCAC816]

I have contacted the preparer but I have not gotten a response from him yet.  The last time I told him about the letter he told me to let him know what the IRS said.  At this point I feel as though he doesn’t know what he is doing and he’s won’t be using his services again.  I’d like to know if I could just pay the remaining 1,000 I owe on the credit this year and be done with it so it won’t be an issue on the future.  If so does it require an amended return or could o contact that department and make a payment on it.  I have asked him this question and he didn’t know the answer. Go figure……

[Opus 17]

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@KCAC816 wrote:

I have contacted the preparer but I have not gotten a response from him yet.  The last time I told him about the letter he told me to let him know what the IRS said.  At this point I feel as though he doesn’t know what he is doing and he’s won’t be using his services again.  I’d like to know if I could just pay the remaining 1,000 I owe on the credit this year and be done with it so it won’t be an issue on the future.  If so does it require an amended return or could o contact that department and make a payment on it.  I have asked him this question and he didn’t know the answer. Go figure……

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The system is not set up for that.  You will close out your payment next year when you report that you sold the house.

It sounds like to need to review what the IRS letter is asking for, whether you included your regular payment or not on schedule 2 line 10, and exactly how form 5405 was filled out.  Are there any boxes checked in part 1?  Any repayments in part 2 or 3?

[KCAC816]

I did not sell my house.  I still own it.  And line 10 of schedule 2 was completed for my payment.  My taxpreparer completed form 5405 which should not have been completed because I did not sell the home and lived in it in 2022.

[Opus 17]

@KCAC816 

But what does form 5405 actually say?  There are only certain boxes that can be checked.  Either your preparer indicated that you moved out, in which case there should be a repayment calculation in part 2 and part 3, resulting in additional money added to your tax owed.  Or the preparer indicated that you transferred the responsibility to a spouse, or that the home was destroyed in a fire, or that you are a member of the military deployed overseas.  

Whatever the preparer put on the form, it sounds like you need to write a letter to the IRS, explaining the situation, and explaining that no form should’ve been filed because you still live in the home.