New Client buys a principal residence home in 2008 and properly claimed the $7,500 tax credit on his 2008 which must be repaid over a 15-year period. A $500 additional tax has been reported each year on Form 5405 from 2010 through 2018.
In 2010, the house was converted to rental and, pursuant to Section 36(f)(2), the entire $7,500 should have been repaid in 2010 because it was no longer the principal residence. The full repayment of $7,500 should have been made in 2010 rather then the $500 amount claimed which means the 2010 tax return was understated by $7,000 and the 2011-2018 tax returns are overstated by $4,000. It's too late to amend the 2010 and report the additional tax that should have been repaid in 2010.
What is the course of action here....to amend 2016-2018 to recover the $500/year and call it a day? Can the IRS recover the unpaid balance of the $7,500 credit even though it should have been reported on the 2010 tax return and wasn't?