Repayment on a Form 5405

posted Jan 11, 2012, 7:40 PM by Wayne Culp   [ updated Jul 8, 2013, 3:25 PM by Wayne Culp ]
Has anyone noticed that we're going to have to teach the use of Form 5405 Page 2 (repayment). This came up in a return created for my home district, where the spouse had died. It was an eye-opener.

The only two returns in 4491-W that have FTHBC repayment for 2008 are Carlton and Austin... both single, or at least not filing a joint return.

If you read the instructions at the top of Form 5405, Page 2, it says:
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The name and SSN must match the name and SSN of the person that claimed the tax credit in the prior year. If the repayment is due to a credit claimed on a married filing joint return, each spouse is treated as having been allowed half of the credit for purposes of repaying the credit. Separate Forms 5405 must be completed by the taxpayer and spouse to repay their portion of the credit. The amounts carried forward from 2010 on line 14 and below line 18b may need to be changed for 2010 joint filers.
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This means that even without carry forward data, if it was a joint return we have to create a 5405 for EACH of them.

We cannot continue using the "one fits all" 5405 - we have to create one for the TP and one for the SP - giving each of them 1/2 of the initial credit and 1/2 of any payments in the past.

This is going to become critical when we start doing taxes, and we need to get this information out to everyone. A lot of students have already completed their classes, so its not going to be easy.

If there IS carry-forward data, all of the info will come into ONE Form 5405 and on the return where we first noticed this in class, it wasn't checked for either TP or SP. One of our class returns had carry-forward where the spouse had died, and that led to this discovery. I believe IRS realized that just because a 'couple' got the credit, doesn't mean the 'couple' will be together for the entire fifteen years it takes to repay it.... there is always death and divorce.

So, when bringing up a 5405 that is already on the tree (from carry-forward) you have to "copy form" to get a second 5405 pg 2, mark one for TP and the other for SP. On the original copy, where the $7,500 shows, change that to $3,750 on each form. Change the $500 (assuming that's what they repaid last year) to $250 on each form.

If there is no carry-forward data, you still have to create one for each of them.

Confused? We sure were. At first we thought we'd have to override the $7,500 on the original form, but then realized that it could simply be entered. Next year, I'm sure that will be locked in though.

Bobbie Seabolt
TRS FL2
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