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Do we have to pay back the Housing Tax Credit 2009, if the house sold at a loss?

Sterling Heights, MI |

My wife and I bought a home in December 2009 for $248,000 and then sold it in June 2012, for $239,600. We got the $8,000 credit in 2009, but didn't complete 3 years there as we had to move because of a change in job. Generally, the homeowners are supposed to pay back the entire Tax Credit if they did not live in the house for at least 36 months.

IRS webiste mentions however, that there are some exceptions to it. If the house was not sold to a related party and if it was sold at a loss the Tax Credit could be waived. How does IRS define a related party? In our case, we did not sell the house to anyone we were related to and also sold it at a loss. Does this mean we can have Tax Credit waived? Do we still have to file form 5405?

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Filed under: Credit Tax law
Attorney answers 2


Family members are defined as related parties include brothers and sisters, spouse, ancestors, and lineal descendants. In-laws and step relationships are not related parties, and losses on sale or exchanges with these parties are acceptable, unless the in-law or step relationship is merely acting as a nominee for a related party. Half-brothers and half-sisters are related parties. Note that there are also rules for corporations owned by the above people.


Mr. Quinn is correct, and you should have your filing reviewed by an accountant or tax attorney for compliance prior to filing. You are running out of time.

To the PROSPECTIVE client, please call myself or another attorney for your choice with more detaiils and an appointment. My PRELIMINARY answer to your question(s) is for general purposes and based upon what little information you have conveyed. It is based on such limited information that the general answer should never be relied as a reason for your action or inaction. My response does NOT establish an attorney-client relationship and such may only be established by mutual agreement, and the signing of a written retainer agreement, which will generally require payment for our services, as this is what we do for a living and, just like you, we must get paid for our work.. .

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