Unmarried First-Time Homebuyers: Who Gets the Credit?

First determine if one or both could qualify for the credit.

The credit is worth as much as $8,000. The IRS can send you a check for the entire amount once you buy the home, or you can use some or all of the credit to reduce your taxes.

To qualify, you need to buy a home between January 1, 2009 and December 1, 2009.

If you're single, you must meet these conditions:

• You haven't owned a principle residence (your main home) in the three years before the purchase date. (For a married couple to qualify, both must not have owned a principle residence in the previous three years.)
• Your 2009 taxable income is less than $75,000. (The credit decreases as your income rises to $95,000. Above that income level, you don't qualify. For married couples the range is $150,000 to $170,000.) 

So how does the credit work if two single people hope to qualify? Such as two friends, siblings, or a couple who live together and aren’t married?

The IRS says that taxpayers who buy a home together can allocate the credit in any “reasonable” manner, just as long as each person who gets the credit meets the first-time homebuyer criteria.

The credit can be claimed by more than two people buying the same house, but we'll keep it simple by explaining how it works for two single taxpayers.

Consider the case of Ashley and Jason, who live together and aren’t married. They buy a home for $100,000 in July 2009. Assuming they qualify, they could get the maximum credit of $8,000. (The credit is 10 percent of the home purchase price, or $8,000, whichever is less.)

Below are four examples involving Ashley and Jason, and how the credit could be divided between them.

Ashley plans to pay $30,000 and Jason plans to pay $10,000 toward the down payment. They will both be jointly liable for the remaining $60,000 mortgage and will have one-half interest in the home as tenants in common.

Ashley’s taxable, or adjusted gross income, is $60,000 and so is Jason’s. (Your adjustable gross income, or AGI, is basically your taxable income before you subtract your standard or itemized deduction and exemptions.)

Option 1: Based on contributions to the purchase, Ashley could get 60% of the $8,000 credit or $4,800. Here's how her 60 percent is figured: her $30,000 down payment plus her $30,000 share of the mortgage share, divided by the $100,000 purchase price, equals 60 percent.

Jason could get 40 percent of the $8,000 credit or $3,200. That's his $10,000 down payment plus his share of the $30,000 mortgage, divided by the $100,000 purchase price equals 40 percent.

Note: Ashley’s $4,800 credit plus Jason’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 percent of the $8,000 credit, or $4,000.

Option 3: The full $8,000 credit could go to either Ashley or Jason because each is eligible for the credit.

Same as the first scenario, except Ashley’s AGI is $100,000 and Jason’s AGI is $50,000.

Because Ashley’s AGI is greater than $95,000, she is not eligible for the credit.

Jason can take the entire $8,000. 

Same as the first scenario. However, Ashley, who bought a home in 2000, lived there until she sold it in 2007.

Because Ashley owned a home in the three years prior to the 2009 purchase, she isn’t eligible for the credit.

Just as in the second scenario,  Jason can get all of the $8,000 credit.  

Same as first scenario. However, Ashley’s AGI is $85,000 and Jason’s is $60,000. They decide to split the credit 50-50.

Option 1: Because Ashley’s AGI is half way through the “phase out,” her portion of the credit will be limited. Jason’s AGI is less than $75,000, so he’ll get all of his 50-percent share of the credit.

When Ashley files her tax return, she’ll enter her share of the credit as $4,000, However, the phase-out calculation will limit the credit she receives to $2,000 (or half of $4,000).

Because Jason’s AGI is less than $85,000, he’ll qualify for his entire $4,000 credit on his tax return.

In this case, only $6,000 of the $8,000 credit could be given.

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