The first-time homebuyer credit provided taxpayers an incentive to purchase a home from 2008 through September 30, 2010. The refundable credit functioned as a loan, and repayment of the credit generally began with the 2010 tax return by adding a minimum of $250 (or $500 for MFJ filers) to the additional taxes due in the return. In the year the home is sold or converted entirely to rental or business use, the remainder of the unpaid credit balance is due.

Form 5405 needs to be completed in the year the home is disposed of or ceases to be the main home. In the case of a sale, including through foreclosure, this is the year in which the purchaser obtains the title to the home.

​Form 5405 does not need to be completed if the home is still the taxpayer's main home. In that case, only enter the annual credit repayment in the tax return.

• If desired, the taxpayer can pay more than the minimum annual repayment.
• When the credit was given to joint return filers in 2008, each spouse was treated as having been allowed half of the credit for the purpose of repaying the credit. Thus when repaying the credit on a joint return, each spouse pays a portion of the repayment amount however calculated.
• If the home's ownership is transferred to the other spouse (or ex-spouse in a divorce settlement), that spouse assumes responsibility for the annual credit repayment.
• If the homeowner dies and there is no surviving spouse, the remaining balance doesn't need to be repaid.
• If the home is destroyed or disposed of through condemnation or the threat of condemnation to an unrelated party, the remaining balance doesn't need to be repaid if there is no gain on the disposition. If there is a gain on the disposition, the amount to be repaid is the lesser of the gain or the remaining unpaid credit balance. The annual credit repayment will continue, and if the taxpayer hasn't purchased a new home within two years the entire remaining credit balance must be repaid.
• A taxpayer who is a member of the uniformed services, the foreign service, or an employee in the intelligence community doesn't have to repay the credit if they dispose of the home due to being on "qualified official extended duty" (see the instructions for the details).

To either enter the annual repayment of the first-time homebuyer credit or complete the form due to a change of ownership or use, from the Federal Section of the tax return (Form 1040) select:

• Other Taxes
• Repayment of First-Time Homebuyer Credit - For MFJ filers, indicate which spouse's information you are entering. You will enter half of the various amounts requested and once finished enter the other half for the other spouse.
• Did the home stop being your primary residence during the current year? - Click Yes or No as appropriate.
• If No:
• Check here if you purchased your home in 2008 - Check the box.
• Enter 1/2 the total credit claimed on Form 5405 in 2008. So, if the total credit claimed in 2008 was $7,500, enter $3,750.
• Enter 1/2 of the full amount repaid with your prior year tax returns - This entry is optional if the taxpayer has paid the minimum required amount each year and no more.
• Enter 1/2 of the full home repayment amount for this year - Enter at least $250.
• If Yes:
• Date Ceased to be Main Home - Enter the date the home was sold or its use changed.
• Answer Yes or No to the question regarding the taxpayer (or spouse) being a member of the uniformed services, the foreign service, or the intelligence community. If the answer is Yes, you are done completing the form.
• Type of Disposition/Change - Check the appropriate box indicating why the home is no longer the main home. Depending on the type of change other information such as the original amount of the credit and the total amount already repaid on prior year returns will need to be entered. You may also be queried for the selling price and selling expenses, the home's adjusted basis, and the amount of the credit remaining to be repaid. (The selling price, selling expenses, and adjusted basis information is similar to what would be entered in Worksheet 2 in Publication 523, Selling Your Home. See that worksheet if you have questions about the details of what each includes.)
• Check here if you purchased your home in 2008 - If you see this statement, check the box.