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Unmarried First-Time Homebuyers: Who Gets the Credit for a 2010 Purchase?

Updated for Tax Year 2011


OVERVIEW

Note: The content of this article applies only to taxes prepared for 2010. It is included here for reference only.

When two unmarried individuals buy a home together, who gets the $8,000 First-Time Homebuyer Credit? There's only one credit per home, and the IRS says that qualified buyers can divide the credit pretty much however they want.


Check Whether You Qualify

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

The credit is worth as much as $8,000.  You can use some or all of the credit to reduce your federal income tax bill. If there’s a leftover credit amount after your tax bill has been reduced to zero, you can ask the IRS to send you  a refund check for that amount or you can treat that amount as an estimated tax payment for 2011.

To qualify for the credit you generally must have  closed on a home purchase  by April 30, 2010. However, if the home was under contract on April 30, 2010, the closing deadline was extended to June 30, 2010. An even later deadline applies if: (1) the home was under contract on April 30, 2010 with a contracted closing date of no later than June 30, and (2) the home did not close by June 30. In this case, the deadline for closing was extended to September 30, 2010.

You must meet these conditions to qualify for the maximum $8,000 first-time homebuyer credit:

  • You did not own a principal U.S. residence (your main home) during the three-year period  that ended on the home purchase date.
  • Your 2010 adjusted gross income was less than $125,000. (The credit is phased out as adjusted  gross income rises to $145,000 (above that figure, you don’t qualify).)
  • You are at least 18 years old and cannot be claimed as a dependent on someone else’s tax return.
  • The home cost at least $80,000 but not more than $800,000.

Buyers Can Divide Up Credit in Various Ways

So how does the credit work if two single people buy a home together (such as two friends, siblings or an unmarried couple)?

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 claims  the credit meets the first-time homebuyer criteria explained above.

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 unmarried buyers.

Consider the case of Ashley and Jason, who live together and aren’t married. They buy a home for $100,000 in 2010. The maximum potential credit is $8,000. (The maximum potential credit equals 10 percent of the home purchase price, or $8,000, whichever is less.)

Below are four examples illustrating how  Ashley and Jason could divide the credit  between them with IRS approval.

First Scenario

Ashley  pays $30,000 and Jason  pays $10,000 toward the down payment. To finance the rest of the purchase price, they take out a $60,000 mortgage for which they are jointly liable. Per their agreement, Ashley and Jason each have a 50% ownership interest as tenants in common.

Ashley’s adjusted gross income is $75,000 and so is Jason’s. (Your adjusted 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 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 entire $8,000 credit could go to either Ashley or Jason because each is eligible.

Second Scenario

Same as the first scenario, except Ashley’s AGI is $150,000.

Because Ashley’s AGI is greater than $145,000, she is not eligible for the credit.

Jason can take the entire $8,000. 

Third Scenario

Same as the first scenario. However, Ashley, who bought a home in 2000, lived there until she sold it in 2009.

Because Ashley owned a home during  the three-year period ending on the date she and Jason purchased their home,  Ashley isn’t eligible for the credit.

Just as in the second scenario, Jason can claim the entire $8,000 credit.

Fourth Scenario

Ashley’s AGI is $135,000. She and Jason want to  split the credit 50-50.

Option 1:  Because Ashley’s AGI is halfway through the $125,000-$145,000 phase-out range, her allowable credit is limited to only $2,000 (her $4,000 share of the credit is reduced by the phase-out rule to $2,000). Since Jason’s AGI is below the $125,000 phase-out threshold, his allowable credit equals his full $4,000 share.

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 can actually claim to only  $2,000 (or half of $4,000).

When Jason files his tax return, his allowable credit will be $4,000 because he is unaffected by the phase-out rule.

In this case, only $6,000 of the $8,000 potential credit can be claimed.

Option 2:  Ashley and Jason could agree to allocate the full $8,000 credit to Jason, in which case he could claim the entire $8,000 on his return.

Want to know more? Watch the video.

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