Recapture of Credit for Purchase or

Construction of New Principal Residence
® Attach to Form 1040.

Internal Revenue Service

1977

Name(s) as shown on Form 1040

Your social security number

1 Amount of credit claimed on residence sold. If you had an involuntary disposition as described in instruc-

tion D, do not fill in remainder of this form, check here >» [] and explain D>

. 1
2 Date you acquired residence on which you claimed credit. (If self-constructed, date you first occupied the

residence). 0. ee ee ee PR
3 Date you sold residence. (If the date on line 3 is not within 36 months of the date on line 2, omit lines 4

through 8 and enter zero on line 9, you do not have to recapture any of the credit onlinel.). . . . « |_3_
4 Date replacement residence acquired. (If self-constructed, check here >» [] and give date construction

began and date you occupied the residence. If residence was not replaced within the replacement period,

omit lines 5 through 8 and enter on line 9the amount onlinel.). . 2... ee 4 -
5 Enter adjusted sales price of residence sold, from Form 2119, linel0. . . . . . ee i
6 Cost (basis) of replacement residence, from Form 2119 (If line 6 is equal to or is more than line 5, omit

lines 7 and 8 and enter zero on line 9, there is no recapture.) (If line 6 is less than line 5 complete lines

7 through 9). 0 ee ee e LB
7 Balance. (Subtract line 6 from line 5, if below zero enter zero.). «6 ee ee ee ee

- , . 8 %

8 Divide amount on line 7 by amount on line 5 and enter the percentage here. . . - . - «© + © -/e
9 Credit to be recaptured. (Multiply amount on line 1 by the percentage on line 8.) Enter here and include the

amount of the recapture in the total for line 36 on your 1977 Form 1040 . -_ 9

Instructions

A. General rule.—If you sell or other-
wise dispose of your new principal resi-
dence (on which a credit was allowed on
the purchase) within 36 months after ac-
quiring it, and do not properly replace
the residence or come under one of the
other exceptions listed later, the full
amount of the credit must be added back
to your Federal income tax. This 36-
month period begins on the day after the
date on which you receive legal title or
possession under a purchase contract or,
if you build the home yourself, the date
on which you first occupy it as your prin-
cipal residence.

B. When to repay the credit—The
amount of the credit to be repaid is added
to your tax for the taxable year in which
your replacement period (as discussed in
the next paragraph) ends, if you do not
replace the residence within that period.
However, if you purchase or begin con-
struction of a new replacement residence
within the replacement period, but do not
reinvest the full proceeds of the original
disposition in the replacement, the por-
tion of the credit to be repaid is added to
your tax for the taxable year following
that of the disposition.

C. Replacement residence.—If you
dispose of the original residence, on
which the purchase credit was allowed,
within 36 months of its acquisition, but
replace it with a new residence (the orig-
inal usage of which begins with you)

within 18 months of the disposition, you
need not repay any part of the credit if
you reinvest the full proceeds in the re-
placement residence. (If you build your
own replacement residence, you have 24
months to construct it, provided con-
struction begins within 18 months of the
disposition of the original home.) In other
words, to avoid repayment of any of the
credit, your cost of purchasing the new
replacement residence must at least
equal the adjusted sales price realized
from the original residence.

Example. On August 4, 1975, you pur-
chased a_new principal residence for
$40,000. The property qualified for the
new home purchase credit and you
claimed a $2,000 credit on your 1975
return. On October 10, 1976, you sold
your residence for an adjusted sales price
of $50,000 and on December 16, 1976,
you purchased a new principal residence
at a cost of $60,000. Since you rein-
vested the entire proceeds from the sale
in the replacement residence, you need
not repay any of the credit claimed.

If the replacement residence costs less
than the proceeds realized on the dis-
position of the original residence, you
will have to repay a portion of the credit
allowed on the. purchase of the original
residence. In such a case, you must add
back to your tax the part of the total
credit which is proportionate to the part
of the adjusted sales price realized on
the disposition of the original residence
not reinvested in the new replacement.

Example. If, in the preceding example,
your new principal residence only cost
$40,000, you will have to repay a portion
of the credit allowed on the purchase of
the original residence. The amount is de-
termined by the following steps. First, re-
duce the adjusted sales price of your orig-
inal residence by the cost of your new res-
idence ($50,000-$40,000=$10,000).
Second, divide the amount determined
in step one by the adjusted sales price
of your original residence ($10,000+
$50,000=.20). Third, multiply the credit
claimed by the figure computed in step
two ($2,000 x .20=$400). This amount,
$400, is the amount to be added to the
tax on your 1977 tax return.

D. Exceptions.—You need not repay
any portion of the credit if the residence
on which the credit was allowed is dis-
posed of under any of these conditions:

(1) On account of the death of any per-
son having a legal or equitable inter-
est in the property;

After a complete or substantial de-
struction by a casualty (fire, storm,
earthquake, etc.);

(2)

After an involuntary conversion such
as a condemnation; or

@)

In a divorce settlement or legal sep-
aration proceeding if one spouse re-
tains the home as principal resi-
dence.

(4)

244-409-1

“# US. GOVERNMENT PRINTING OFFICE : 1977—O-244-409

Form 5405 (1977)