Two Unmarried People Purchase a Home — Who Gets the New $8,000 Homebuyer Tax Credit?

First-Time Homebuyers Credit

First-Time Homebuyers Credit

It’s all over the news. If you buy a home between January 1, 2009 and December 1, 2009, you could qualify for a big homebuyer tax credit.  It’s worth as much as $8,000 or 10 % of your home purchase price, whichever is less.

To be eligible, you can’t have owned a principal residence during the three years prior to purchase date and your adjusted gross income or AGI can’t be more than $95,000 ($170,000 if filing married joint). AGI is basically your taxable income before you subtract your standard or itemized tax deduction and exemptions.

In Live Community, we’re seeing lots of questions about who gets the tax credit if an unmarried couple (or siblings, fishing buddies, sorority sisters, etc.) buys a home in 2009. Let’s say the home’s price is $60,000. Since each person files a separate tax return, does each person get the $6,000 ($60,000 times 10%) credit? Nope!  There’s only one credit per home – but the buyers can divvy it up in many different ways.

The IRS says that the taxpayers can allocate the tax credit in any “reasonable” manner as long as they don’t give the credit to someone who is ineligible for the credit. Huh?

Let’s look at some of the possibilities.

Sam and Suzy have dated forever and decided it’s time to buy a $100,000 house.  It’ll be a first-time purchase for both of them.  The maximum credit for this home is $8,000.

Example 1: Sam plans to pay $30,000 and Suzy to pay $10,000 toward the down payment. They will both be jointly liable for the remaining $60,000 mortgage and have one-half interest in the home as tenants in common. Sam’s adjusted gross income (AGI) is $60,000 and so is Suzy’s.

Option 1: Based on contributions to the purchase, Sam could get 60% of the $8,000 credit or $4,800. Here’s how his 60% is figured:  $30,000 down payment + $30,000 mortgage share /$100,000 purchase price  = 60%.

Suzy could get 40% of the $8,000 credit  or $3,200. That’s $10,000 down payment + $30,000 mortgage share / $100,000 purchase price = 40%.

Note:  Sam’s $4,800 credit plus Suzy’s $3,200 credit equals $8,000.  The total of the credits can’t be more than $8,000.

Option 2: Based on their ownership interests, they could each get 50% of the $8,000 credit, or $4,000.

Option 3: 100% of the credit could go to either Sam or Suzy because both are eligible for the credit.

Example 2: Same as example 1 however Sam’s AGI is $100,000 and Suzy’s AGI $50,000.

Option 1:Since Sam’s AGI is greater than $95,000, he is not eligible for the credit so Suzy takes all of the credit.

Example 3: Same as example 1 however Sam owned a home from 2000 and sold it in 2007.

Option 1: Since Sam owned a home in the 3 years prior to the new purchase, he isn’t eligible for the credit. Just like example 2, Suzy can get all of the $8,000 credit.

Example 4:Same as example 1 however Sam’s AGI is $85,000 and Suzy’s is $60,000. Note:  If the AGI is between $75,000 and $95,000, the amount of homebuyer credit allowed is “phased out” the closer the AGI gets to $95,000.

Option 1: Since Sam’s AGI is half way in the “phase out”, the amount of credit that is allocated to Sam will be reduced by 50%.  Let’s say the credit is split 50/50 with Sam and Suzy.  Suzy’s return will show her share of the credit – $4,000 and since her AGI is less than $85,000, she’ll get all of the $4,000 credit on her tax return.

When Sam files his tax return, he’ll show his share of the credit ($4,000) credit with an AGI of $85,000.  However, the phase-out calculation will limit the credit on his tax return to only $2,000 ($4,000 times 50%).

In this case, only $6,000 of the $8,000 was available as a refund or to reduce taxes.

Option 2: Suzy could get all of the $8,000 credit.

As you can see, the homebuyer tax credit could be a real boost for the housing industry and the economy – and be a great exercise in sharing the credit and handling relationships!

For more information on this great credit, check out Taking the First-Time Homebuyer Credit.

Comments (10) Leave your comment

  1. This all just sounds way to complicated for me. Why can’t anything about tax ever be simple? For me it is. The government takes my money. Period. From their side they never lose. Isn’t nit fun being born into economic systems that doesn’t make sense, least of all being taxed to death by a parasitic state that does little for the lot they demand.

    What do you guys have to say?

    Monica

  2. Hello to T.Olsen, Good questions. I’m not in position to give you tax advice for a specific situation. However I did find questions/answers on the IRS site that may answer your questions. Check out http://www.irs.gov/newsroom/article/0,,id=206291,00.html
    Q. If a person does not actually make the payments on a home that’s their primary residence, but the deed and mortgage documents are in their name, can they be considered a first-time home buyer?
    A. Yes. If a taxpayer purchases a home to be used as a primary residence from an unrelated person and has not owned a home within the previous 36 months, the taxpayer is eligible for the first-time homebuyer credit regardless of who makes the mortgage payment. (05/06/09)
    Q. I don’t owe taxes and/or my income is exempt from tax and I do not have a filing requirement. Do I qualify for the credit?
    A. The credit is fully refundable and, if you qualify as a first-time homebuyer, having tax-exempt income will not preclude eligibility. Although there are maximum income limits for qualifying first-time homebuyers, there are no minimum income criteria. Thus, someone with no taxable income who qualifies as a first-time homebuyer may file for the sole purpose of claiming the credit for a refund.
    ALSO check out http://www.irs.gov/newsroom/article/0,,id=206294,00.html
    S2. Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much?
    A. Yes. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A’s primary residence.
    Hope this info is helpful

  3. Two questions:
    1) I have real estate customers who own their primary home. They have two sons who will be attending college and will share a home near the college. The home will be purchased in the names of both sons, neither of whom have previously owned a home, and with parent as co-signers. One is a “taxpayer” because of his part time job. The other son does not yet have a job so is not yet a “taxpayer”. Both sons can still be claimed as exemptions on parent’s taxes. Since the sons will own the home, can one or both claim the homebuyer credit?
    2) Your comments on April 6 that taxable income was not necessary, but the guidelines keep saying qualified “TAXPAYER”. I’m truly concerned about this distinction. Please advise how someone can be a “taxpayer” without a taxable income.
    THANK YOU so much for your assistance!!!

  4. This past week, Tuesday or Wednesday a gal was extraordinarily helpful, her name was Katie. She was so helpful in solving my problem I ask about sending some kind words and she said that within 24 hours I would receive a questionaire that I could submit. I did receive a recap Email but nothing else. I would appreciate an opportunity to comment.
    Thank you,
    Jim

  5. Hello to Cindy, Great question…I’ve revisited the tax law and don’t see anywhere that says you have to have taxable income. Since it’s a “refundable” credit, you get it whether or not you have any tax to be reduced by the credit. So I see no reason why you can’t get the credit…. you just need to to file a tax return.

  6. I earn social security disability so I pay no taxes, I am purchasing a home for the first time will I earn a credit?

  7. Hello to Joann, You can only get a credit for a home purchased after April 8, 2008 and before December 1, 2009. You cannot get the credit it you own a home (either you or your spouse) for 36 months prior to the close on your new purchase.

    • Hi @Mike, thanks for stiopng. Great question, something I have not seen before. In fact, the IRS does not care if you owned a home outside the US. So you qualify as first-time home buyers (at least on ownership history, you still have to qualify on other criteria). Q. Would I be considered a first time homebuyer if I owned a principal residence outside of the United States within the previous three years?A. Yes. A taxpayer who owned a principal residence outside of the United States within the last three years is not disqualified from taking the credit for a purchase within the United States.

  8. Your webform for sending email to support gives an error every time I tried it. The error reads: DEVELOPMENT CONFIGURATION ERROR: cant find form element – p_prod_lvl1

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