First Time Home Buyer Tax Credit

I have been receiving alot of questions about how the First Time Homebuyer Tax Credit works, this is some information that I have been able to research and share with you. First...

What happens when 2 single people purchase a home together and what would be the implications.  

To decide who is eligible to receive the first-time homebuyer credit, we have to decide WHAT is a first-time homebuyer...

A first-time homebuyer is someone who has not had an ownership interest in a principal residence in the past three years ending on the date of purchase of the home for which the credit applies.

If an individual is married, neither the individual nor their spouse may have had a present ownership interest in a principal residence during the three-year period.

The allocation: If two (or more) unmarried persons purchase a home together, the credit maximum remains $8,000 and may be apportioned between them. When one (or more) persons is ineligible for the credit, the credit may be allocated among the eligible purchasers using any reasonable manner. A reasonable manner is one which does not apportion any amount of the credit to an ineligible taxpayer.

Here are a few examples:

Example 1: Husband and wife purchase a home together in 2009. Wife has never had a present ownership interest in a principal residence, but husband had a present ownership interest in a principal residence in 2007. Neither spouse would qualify for the credit because one spouse had a present ownership interest in a principal residence within the three-year period ending on the date of purchase.

Example 2: Buyer A contributes $45,000 and Buyer B contributes $15,000 towards the $60,000 purchase price of the residence. The maximum credit allowed is $6,000 (10% of the purchase price). A and B may allocate 3/4 of the credit to A and 1/4 to B based on their respective ownership interests in the residence, or using any other reasonable manner.

Example 3: Buyer A contributes $10,000 for a down payment toward the $100,000 purchase price. Buyer A and Buyer B obtain and are jointly liable for a $90,000 mortgage. Each owns one half interest in the residence. The maximum amount of the credit is the credit maximum of $8,000. A and B may allocate the allowed credit 55% to A and 45% to B based on their contributions toward the purchase price, one half to each based on their ownership interest, or any other reasonable manner.

Example 4: Buyer A pays the entire $100,000 purchase price of a residence and is the sole owner. Buyer A then transfers one half interest in the residence to Buyer B as a tenant in common for $10,000. A may claim the entire amount of the credit. Buyer B is not allowed to claim any amount of the credit because B's interest was acquired in part by gift and B's basis is determined under §1015 by reference to Buyer A's basis in the residence. Therefore, B did not purchase an interest in the residence and no portion of the credit may be allocated to B because B is not eligible to claim the credit.

Example 5: Buyer A and B each contribute $50,000 toward the $100,000 purchase price of the residence and each owns a one-half interest as tenants in common. Buyer A, but not B, is an eligible first-time homebuyer as defined above. The entire amount of the allowed credit of $8,000 may be allocated to A because he or she is eligible for the credit. No portion of the credit may be allocated to B because B is not eligible to claim the credit.

Example 6: Buyer A contributes $75,000 and Buyer B contributes $25,000 toward the $100,000 purchase price of the residence and each owns a one-half interest. A single taxpayer, A has MAGI that exceeds the $95,000 phase-out limit for the credit, so any portion of the credit allocated to A would be reduced to $0. Therefore, A and B may allocate the entire allowable $8,000 credit to Buyer B because B's MAGI is less than the $75,000 MAGI threshold and therefore, B is eligible to claim the entire credit.

Vacation Home: an ownership interest in a vacation home will not disqualify someone from being considered a first-time homebuyer for purposes of this credit | However, only homes located in the United States are considered for purposes of this credit.

What does "purchase" mean?

Purchase means any acquisition, but only if the property isn't acquired from a person related to the taxpayer.

Who is a related person?

Taxpayers are considered related if their relationship would result in the disallowance of losses under §267. For purposes of this credit an individual is only related to his or her spouse, ancestors, and lineal descendents. A taxpayer is not considered to be related to his or her siblings.

Election to treat purchase in 2009 as purchase for 2008 return: if a taxpayer purchases a residence after Dec. 31, 2008, but before December 1, 2009, they may elect to treat the purchase as occurring on Dec. 31, 2008 and take the credit on their 2008 return. If the home is actually purchased after the 2008 return has been filed, the taxpayer may amend his or her 2008 return to claim the credit.

New Construction: A residence that the taxpayer is in the process of building will be treated as purchased on the date the taxpayer first occupies it. This means that a taxpayer must first occupy the property after April 8, 2008 and before December 1, 2009, to be eligible to claim this credit.

What is the purchase price?

The purchase price is the adjusted basis of the principal residence on the date it is purchased. The basis of the property includes legal fees, title search, revenue stamps, and recording fees.