First time home buyer's credit

[cpabsd]

I did not prepare the original return. However, when attempting to e file the 2010 return, became aware that the taxpayer received a first time home buyer's credit in 2008. This was the one that was required to be paid back. During 2009, the taxpayer filed bankruptcy. The house was sold during the bankruptcy. This information was not reported to the IRS. Does this change that the taxpayer is required to payback the amount? Is it all required to be paid back at the time the house was sold? I know how it would be handled if the house were sold in an arms length transaction but since it was done as part of bankruptcy, not sure if that changes the treatment.

Thanks for any guidance.

[Pacun]

I did not prepare the original return. However, when attempting to e file the 2010 return, became aware that the taxpayer received a first time home buyer's credit in 2008. This was the one that was required to be paid back. During 2009, the taxpayer filed bankruptcy. The house was sold during the bankruptcy. This information was not reported to the IRS. Does this change that the taxpayer is required to payback the amount? Is it all required to be paid back at the time the house was sold? I know how it would be handled if the house were sold in an arms length transaction but since it was done as part of bankruptcy, not sure if that changes the treatment.

Thanks for any guidance.

Your client doesn't have to pay any of the credit back if the house was sold at a loss.

If the gain had been less than the $7,500 her repayment would be limited to the amount of the gain. If she sold it for a loss then none of the credit would have to be repaid.

In your case it is clear that the house was sold at a loss.

[OldJack]

Also, you are filing 2010 and someone else filed 2009. Other than advising the taxpayer of your findings you have no reason to do anything about the sale in 2009.