by David & Mary Mellem, EAs
Overview The 1st Time Homebuyer Credit was created in 2008. Basiically it allows a refundable credit of 10% of the cost of a principal residence, up to a maximum credit of $7,500 ($3,750 for MFS). The credit is reported on the Form 1040, line 69. (The credit is really a noninterest bearing loan from the government. We discussed this credit in an email during 2008 and you have probably heard about it during the fall seminars.)
An eligible taxpayer is someone who has not owned any present interest in a principal residence during the past 3 years prior to the purchase date. If married, the spouse also must meet this test EVEN if the spouse does not own any portion of the purchased principal residence. There is a phase-out of the credit when the taxpayerâ€™s AGI exceeds $70,000 ($150,000 for MFJ), with complete phase-out when the AGI reaches $90,000 ($170,000 for MFJ).
When there are two or more unrelated purchasers of the property, the maximum credit is $7,500 between all of the owners. Congress gave IRS the authority to give directions on how to allocate the credit among the unrelated purchasers. IRS has now provided the allocation in Notice 2009-12.
Notice 2009-12 is a seven page pdf document. Briefly it states taxpayers can allocate the credit in any manner they desire among the eligible purchasers. Therefore they can allocate the credit all to one buyer, based on down payment, based on ownership percentages, based on AGIs, or any other manner they agree upon. The amount of credit each taxpayer claims is the amount that taxpayer will have to repay during the recapture period. NOTHING can be allocated to a taxpayer who is not eligible, such as a taxpayer who has owned a principal residence during the past 3 years. AGI is not an eligibility item, but any amount that is allocated to a taxpayer who has an AGI in the phase-out range (or higher), will be reduced as normal; therefore many taxpayers will choose to allocate nothing to this owner and allocate the entire credit to the other owner(s).
The Notice contains seven examples of allocations.
A copy of this Notice can be found at www.irs.gov/pub/ by clicking on irs-drop and then clicking on n-09-12. We can also send you a pdf copy of the Notice upon request.
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- IRS Form 1040 :: Line 69 – First Time Homebuyers Credit
- IRS Form 5405 :: First-Time Homebuyer Credit
- IRS.gov :: The Real IRS site