IRS Gives Unmarried Home Co-Buyers Guidance on Tax Credit
While the leaders and grassroots members of NAHB continue to push hard for revising the home buyer tax credit so that it is substantial enough to stimulate home buying demand and reignite the nation’s faltering economy, the Internal Revenue Service has provided guidance on how unmarried co-buyers of a home can take advantage of the credit that is currently available.
“Although the first-time buyer tax credit hasn’t met the original expectations that it would help get the housing market moving again, it is nonetheless providing a financial benefit to many qualified first-time home buyers,” said Robert Dietz, NAHB’s director of tax issues. “While the tax credit has proven too limited to generate a significant return of prospective buyers to the marketplace, it can be a valuable selling tool for home builders, and there are many first-timers who are interested in it.”
Under current law, qualified first-time home buyers who close on their purchase before July 1 can claim the tax credit by completing IRS Form 5405 and entering the allowable credit amount on line 69 of Form 1040, the individual income tax return. In a report on the credit, NAHB has estimated that the value of the no-interest loan of $7,500 is approximately equal to $4,000, Dietz said.
The instructions for the form indicate that the IRS has accepted a recommendation from NAHB and others in the real estate community on an uncertain area in the law. The instructions for Form 5405 make it clear that unmarried co-buyers of a home can allocate the credit in any “reasonable manner.” In Notice 2009-12, the IRS has defined this to include allocating the credit amount according to the ownership interest or downpayment contribution of the buyers.
These tax credit rules can be useful for a first-time home buyer purchasing a home with a non-first-time home buyer. The entire allowed credit amount in this case can be allocated to the first-time buyer. Joint first-time home buyers also can allocate the credit amount to ensure that the law’s income phaseout does not reduce the total allowable credit. (See Example 5 of Notice 2009-12.)
The rules for married taxpayers are clear in the statute. Married taxpayers filing a joint return can claim the entire credit on their income tax return. However, married taxpayers filing separate tax returns must claim half the credit on each tax return, and both spouses must be qualified first-time home buyers.
For more information on the tax credit, click here.