Note: This post does not constitute tax advice. You must seek a professional tax advisor for your specific tax circumstances.
If you bought a home in Frisco TX in 2009 or until June 2010, and you claimed the First Time Home Buyer Tax Credit of $8,000 and you are now ready to sell it, you must consider some tax implication (if it applies to you). Even if you continue to own the property and it is no longer your primary residence, there are some tax consequences.
If you owned your home for less than 3 years (from the date of settlement) and you claimed the $8,000 First Time Home Buyer Tax Credit, selling the home in less than 3 years will require for you to repay the $8,000 tax credit in FULL in the year when you sell.
There are some circumstances where you do not need to pay back (or recapture):
(1) Taxpayer dies in less than 3 years of ownership
However, if the property is owned by husband and wife on a joint return, the surviving spouse must still fulfill its 3-year personal residence requirement.
If husband and wife file a joint return, for the IRS tax purposes, it considers each person with half repayment obligation. If both decides to sell the property, each will take the $4,000 each repayment on its tax. Otherwise, if one of the party leaves the property and the other remains, the remaining spouse receives the full tax repayment obligation if s/he sells in less than 3 years.
(3) Involuntary conversion
If the property was destroyed in a natural disaster or the property subject to eminent domain (property sold to government, state, town for public use), you do not need to recapture (or pay back) the tax credit you received.
You must fill out IRS Form 5405 (Part 4) to correctly recognize your Tax Credit Recapture in the year you become disqualified.