Sharing the New Homebuyers Credit


You’ve decided to buy a new home, but there’s just one problem: you couldn’t convince your bank to give you a loan. So Mom and Dad are signing onto your dream home deed. Maybe it’s not your ideal home-buying situation, but there might be a silver lining. 

We’ve talked about how first-time homebuyers who purchase their home in 2009 are eligible to earn a tax credit of up to $8,000.  But did you know that the credit may still be available to you even if you jointly purchase a home with someone else?  Of course, as always, it depends on your personal circumstances.

Remember, the credit is available only to new homebuyers.  So if you are a new homebuyer and you purchase a house with parents who already own a residence, the credit is available only to you.

What if, instead of your parents, you get Uncle Moneybags to be your co-owner, and he’s never owned a piece of property in his life? If you are both new homeowners then the credit can be split between the two of you.  How you allocate the credit is completely up to you and Uncle Moneybags.  The IRS allows you to divvy it up using any reasonable method as long as all portions of the credit are allocated to taxpayers who are eligible for it.

Also, your co-owner does not have to be a relative.  He or she can be your neighbor, your local coffee barista, your friend, or even your worst enemy.  Just remember that only new homebuyers can claim the tax credit.

So how does it work?  Let’s say you and a co-owner decide to buy a $100,000 home in your favorite part of town.  You put up $25,000 and your co-owner pays the other $75,000.  You agree to have equal ownership, so you each own a 50 percent interest in the property.  The allowable credit is limited to 10 percent of the purchase price of the new home, and it can’t exceed $8,000.  In this scenario, the available credit is the maximum allowed, $8,000. You can claim a portion of the credit based on your contributions (one-fourth to you, $2000, and three-fourths, or $6000, to your co-owner).  Or you can split the credit equally based on your equal ownership interest in the property.  You and your co-owner can even agree to allocate the entire credit to only one of you. 

Now remember, the credit is subject to certain restrictions, such as income limitations.  The phase-out range for single filers is between $75,000 and $95,000 (for joint filers the credit starts phasing out at $150,000).  You are required to reside in the residence for a minimum of three years. If you sell the house or move out within that time, you’ll have to pay back the credit.  Also, you can’t buy your home from a close relative.

Last but not least, co-ownership comes with both benefits and disadvantages.  For instance, different forms of co-ownership come with different rights to property sales proceeds, rental proceeds and mortgage rights.  Each of these will depend on the law in your state.  Make sure you look into all of your options and consider all of the consequences when deciding to go in together with someone on the purchase of a home.

For more tax information, check out our complete archive of Daily Deductions!

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