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as long as you both are first time homebuyers.

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National First-time Homebuyer Credit: Allocation Among Taxpayers

The national first-time homebuyer credit can apply when a first-time homebuyer purchases a principal residence in the United States after April 8, 2008, and before December 1, 2009.56 The credit does not apply to any purchase made on or after December 1, 2009.57 See INDIV: 57,952 for discussion of the general rules for the credit. See INDIV: 57,954 for discussion of allocating the credit among unmarried taxpayers.

The maximum national first-time homebuyer credit is generally $8,000 for home purchased during the eligible period in 2009 (that is, after December 31, 2008 and before December 1, 2009);58 and $7,500 for homes purchased during the eligible period in 2008 (that is, after April 8, 2008 and before January 1, 2009).59 For a married taxpayer who files a separate return, the maximum credit is $4,000 for a home purchased during the eligible period in 2009,60 and $3,750 for homes purchased during the eligible period in 2008.61 See INDIV: 57,952 for discussion of the credit amount.

If two or more unmarried taxpayers purchase a home together, their aggregate national first-time homebuyer credit cannot exceed the applicable maximum, and is allocated among them as prescribed by the IRS.62 The credit may be allocated among the taxpayers using any reasonable method. A reasonable method is any method that does not allocate any portion of the credit to a taxpayer not eligible to claim that portion. A reasonable method includes allocating the credit between taxpayers who are eligible to claim the credit based on the taxpayers' contributions towards the purchase price of a residence as tenants in common or joint tenants, or the taxpayers' ownership interests in a residence as tenants in common.63

The following examples illustrate how the first-time homebuyer credit may be allocated when two unmarried taxpayers purchase a principal residence as tenants in common. These rules also apply in a similar manner to taxpayers who purchase a principal residence as joint tenants.64 Unless otherwise indicated in these examples, Ann and Bob purchase a principal residence on May 1, 2008, they are not married to each other, they meet all of the requirements to be eligible for the credit, and they are not subject to any phase-out of the credit (the phase-out generally begins at $75,000 and is complete at $95,000, or $150,000 and $190,000, respectively, on a joint return). See INDIV: 57,952 for discussion of the credit requirements and the phase-out.


Example 1
Ann contributes $45,000 and Bob contributes $15,000 towards the $60,000 purchase price of a residence. Each owns a one-half interest in the residence as tenants in common. The allowable total national first-time homebuyer credit is $6,000 (10 percent of the purchase price; see INDIV: 57,952). Ann and Bob may allocate the allowable $6,000 credit: (i) three-fourths to Ann and one-fourth to Bob, based on their contributions toward the purchase price of the residence; (ii) one-half to each based on their ownership interests in the residence; or (iii) using any other reasonable method (for example, the entire credit to Ann or Bob because both Ann and Bob are eligible to claim the entire allowable credit).65


Example 2
Ann contributes $10,000 for a down payment towards the $100,000 purchase price of a residence. They obtain and are jointly liable for a $90,000 mortgage for the remainder of the purchase price. Each owns a one-half interest in the residence as tenants in common. Their total allowable credit is $7,500 (the maximum credit for purchases in 2008). Ann and Bob may allocate the allowable $7,500 credit: (i) 55 percent to Ann and 45 percent to Bob based on their contributions toward the purchase price; (ii) one-half to each based on their ownership interests in the residence; or (iii) using any other reasonable method (for example, the entire credit to Ann or Bob because both are eligible to claim the entire allowable credit).66


Example 3
On April 15, 2008, Ann pays the entire $100,000 purchase price of a residence and is the sole owner. Her allowable credit is $7,500. On May 12, 2008, she transfers a one-half interest in the residence to Bob as a tenant in common for $10,000. Ann may claim the entire allowable $7,500 credit. Because Bob acquired his interest in the residence from Ann in part by gift, his basis in the residence is determined by reference to Ann's basis in the residence. Therefore, he did not purchase an interest in the residence, and no portion of the credit may be allocated to Bob because he is not eligible to claim any portion of the credit.67


Example 4
Ann and Bob each contributes $50,000 towards the $100,000 purchase price of a residence, and each owns a one-half interest in the residence as tenants in common. The total allowable credit is $7,500. However, Bob had a present ownership interest in another residence within the three years preceding the purchase, so he does not qualify as a first-time homebuyer for purposes of the national first-time homebuyer credit. Therefore, no portion of the credit may be allocated to Bob because he is not eligible to claim any portion of the credit. Ann may claim the entire allowable $7,500 credit.68


Example 5
Ann contributes $75,000 and Bob contributes $25,000 towards the $100,000 purchase price of a residence, and each owns a one-half interest in the residence as tenants in common. The total allowable credit is $7,500. Ann's modified adjusted gross income (AGI) is $100,000, and Bob's is $60,000. Because Ann's AGI exceeds the $95,000 ceiling for the complete phasout of the credit (see INDIV: 57,952) any portion of the credit allocated to her must be reduced to $0. Ann and Bob may allocate the entire allowable $7,500 credit to Bob because his AGI is less than the amount at which the credit is eliminated. Therefore, he is eligible to claim the entire allowable credit.69


Example 6
Ann and Bob each contributes $50,000 towards the $100,000 purchase price of a residence and owns a one-half interest in the residence as tenants in common. The allowable credit is $7,500. Ann's modified AGI is $80,000, and Bob's is $60,000. Ann and Bob may allocate the allowable $7,500 credit one-half to Ann and one-half to Bob ($3,750 each) based on their contributions toward the purchase price of the residence or their ownership interests in the residence. However, because Ann's AGI exceeds the $75,000 phase-out threshold by $5,000, her credit is reduced by one-quarter ($5,000 / $20,000). Thus, Bob may claim a $3,750 credit, but Ann's $3,750 credit is reduced by 25 percent, to $2,812.50. Alternatively, Ann and Bob may allocate the allowable $7,500 credit using any other reasonable method. For example, they could allocate the entire credit to Bob because he is unaffected by the phase-out and, thus, is eligible to claim the entire allowable credit.70


Example 7
Rose and Daisy are sisters who each contribute $50,000 to purchase a $100,000 residence from their cousin Hyacinth. Rose and Daisy each own a one-half interest in the residence as tenants in common. The total allowable credit is $7,500. Hyacinth is not a related person with respect to Rose and Daisy (see INDIV: 57,952). Therefore, Rose and Daisy may allocate the allowable $7,500 credit one-half to Rose and one-half to Daisy based on their contributions toward the purchase price of the residence or their ownership interests in the residence. Alternatively, they may allocate the allowable $7,500 credit using any other reasonable method (for example, the entire credit to Rose or to Daisy because they both are eligible to claim the entire allowable credit).71


Comment
These rules appear to present one of the few situations where unmarried taxpayers are treated more generously than married ones. That is because the statute expressly allows a married taxpayer who files a separate return to claim only half the maximum credit ($3,750 for purchases during the eligible period in 2008, and $4,000 for purchases during the eligible period in 2009).72 In contrast, these rules allow one unmarried co-purchaser to claim the entire allowable credit.


Example 8
Kara and Sam are married. They each meet all the requirements for the national first-time homebuyer credit. They each contribute $50,000 toward the purchase of a residence for $100,000 in July, 2009. The maximum allowable credit is $8,000. Sam's modified AGI is $200,000, and Kara's is $70,000. Thus, the credit is completely phased out for them on a joint return. If they file separately, the credit is still completely phased out for Sam, but Kara is not affected by the phase-out. If they were unmarried, she could claim the entire $8,000 on her return. Since they are married, however, the maximum credit she can claim on her separate return is $4,000.

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That credit is going to be the least of your worries.

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