vom 9405

Department of the Treasury
Internal Revenue Service

Recapture of Credit for Purchase or
Construction of New Principal Residence

» Attach to Form 1040.

| 1978

Name(s) as shown on Form 1040

Your social security number

ay

residence.)

2 Date you sold residence. (it this date is more than 36 months from the date on line 1, do not ‘complete the

rest of form. You do not have to recaptt

3 Date replacement residence acquired. (If self-constructed, check here > q and give date construction
began and date you occupied the residence. If residence was not replaced within the replacement period,

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

ure any of the credit)... _

skip lines 5 through 8 and enter on line 9 the amount from line 4.) .

rs

in rest of form; check here p> [] an

a

Enter adjusted sales price of residence

a

Amount of credit claimed on residence sold. See “exceptions” in instruction D. ity you qualify, do not fill

d explain

sold, from Form 2119, line ll. . . . .
Cost of replacement residence, from Form 2119, line 12, 18 or 24. (If line 6 is equal to or is more than
line 5, skip lines 7 and 8 and enter zero on line 9; there is no recapture.) .

7 Balance. (Subtract line 6 from line 5.) .
8 Divide amount on line 7 by amount on line 5 .
9

for line 36 on your 1978 Form 1040 .

Credit to be recaptured. (Multiply amount on line 4 by the figure on line 8.) Include this amount in the total

Instructions

A. General Rule.—If you sell or dis-
pose of your principal residence, on
which a credit was allowed on the pur-
chase, within 36 months after acquiring
it, and do not properly replace the resi-
dence or come under one of the other ex-
ceptions listed later, the full amount of
the credit must be added back to your
Federal income tax. This 36-month pe-
riod begins on the day after the date on
which you receive legal title or posses-
sion 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.—lf you
dispose of the original residence within
36 months of its acquisition and reinvest

the full proceeds within 18 months of the
disposition in a new residence, the orig-
inal use of which begins with you, you
need not repay any part of the credit. If
you build your own replacement resi-
dence, you have 24 months to construct
it, provided construction begins within
18 months of the disposition of the orig-
inal home.

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, 1977, you sold
your residence for an adjusted sales price
of $50,000 and on December 16, 1977,
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 part 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 that is proportionate to the part of
the adjusted sales price realized from the
disposition of the original residence and
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 part
of your 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 1978 tax return.

D. Exceptions.—You need not repay
any part 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

(3)

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

4

263-384-1

‘¥¢ US, GOVERNMENT PRINTING OFFICE : 1978—-O-263-384

Form 5405 (1978)