January 15, 09

NEWS / Allocation of Section 36 First-Time Homebuyer Credit Between Taxpayers Who Are Not Married

Notice 2009-12
PURPOSE
This notice provides guidance under § 36(b)(1)(C) of the Internal Revenue Code
(Code) for allocating the first-time homebuyer credit between taxpayers who are not
married.
LAW
Section 36 was added to the Code by section 3011 of the Housing and Economic
Recovery Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654, 2888 (2008). Section 36(a)
provides that a taxpayer who is a first-time homebuyer of a principal residence (as
defined in § 121) may claim a credit on the taxpayer’s income tax return equal to 10
percent of the purchase price of the residence. Section 36(c)(1) defines “first-time
homebuyer” as any individual (and if married, the individual’s spouse) who has not had
an ownership interest in any principal residence during the three-year period ending on
the date of the purchase of the principal residence. Section 36(c)(3) defines “purchase”
as any acquisition, but only if (i) the taxpayer did not acquire the property from a related
person, and (ii) the taxpayer’s basis in the property is not determined, in whole or in
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part, by reference to the adjusted basis of the property in the hands of the person from
whom the taxpayer acquired the property, or determined under § 1014(a) (relating to
property acquired from a decedent). For purposes of § 36(c)(3)(i), § 36(c)(5) provides
that a person is treated as related to another person if the relationship would result in
the disallowance of losses under § 267 or § 707, except that members of a family of an
individual include only the individual’s spouse, ancestors, and lineal descendants.
Pursuant to § 36(h), the first-time homebuyer credit applies to a home purchased
on or after April 9, 2008, and before July 1, 2009. The maximum amount of the credit is
$7,500 ($3,750 for a married taxpayer filing a separate return), as provided in
§ 36(b)(1)(A) and (B). Under § 36(b)(2), the credit begins to phase out for a taxpayer
whose modified adjusted gross income (MAGI ) is $75,000 ($150,000 for married
taxpayers filing a joint return) (“MAGI threshold”). The allowable credit is reduced by an
amount equal to:
Maximum Allowable x MAGI in excess of $75,000 ($150,000 for married filing jointly).
Credit $20,000
The credit is completely phased out for a taxpayer whose MAGI is $95,000 ($170,000
for married taxpayers filing a joint return) (“MAGI cap”).
Section 36(f) generally requires a taxpayer who claims the first-time homebuyer
credit to repay the credit allowed in 15 equal annual installments beginning with the
second taxable year after the taxable year in which the taxpayer claims the credit. This
repayment obligation may be accelerated or forgiven under certain exceptions as
provided in § 36(f).
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For eligible purchases in 2008, a taxpayer claims the credit by attaching Form
5405, “First-Time Homebuyer Credit,” to the taxpayer’s 2008 tax return. For eligible
purchases in 2009, a taxpayer may elect to claim the credit for 2008 or 2009 by
attaching Form 5405 to the taxpayer’s original or amended 2008 tax return or 2009 tax
return.
APPLICATION
Section 36(b)(1)(C) provides that the Secretary may prescribe the manner in
which the first-time homebuyer credit is allocated between two or more taxpayers who
are not married and who purchase a principal residence. The total credit allocated
between the taxpayers cannot exceed $7,500. For purposes of § 36(b)(1)(C), if two or
more taxpayers who are not married purchase (within the meaning of § 36(c)(3)) a
principal residence and otherwise satisfy the requirements of § 36, the first-time
homebuyer credit may be allocated between 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 (1)
the taxpayers’ contributions towards the purchase price of a residence as tenants in
common or joint tenants, or (2) the taxpayers’ ownership interests in a residence as
tenants in common.
EXAMPLES
The examples illustrate how the first-time homebuyer credit may be allocated
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when A and B purchase a principal residence as tenants in common. The rules
illustrated in the examples also apply in a similar manner to taxpayers who purchase a
principal residence as joint tenants. Unless otherwise indicated, assume that in each
example A and B (i) purchase a principal residence on May 1, 2008, (ii) are not married
to each other, (iii) do not have MAGI in excess of the MAGI threshold, and (iv) are firsttime
homebuyers who otherwise satisfy the requirements of § 36.
Example 1.
A contributes $45,000 and B 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. Under § 36(a), the allowable credit is limited to 10 percent of the purchase
price, or $6,000. A and B may allocate the allowable $6,000 credit three-fourths to A
and one-fourth to B based on their contributions toward the purchase price of the
residence, one-half to each based on their ownership interests in the residence, or
using any other reasonable method (for example, the entire credit to A or B because
both A and B are eligible to claim the entire allowable credit).
Example 2.
A contributes $10,000 for a down payment towards the $100,000 purchase price
of a residence, and A and B 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. Under § 36(b)(1)(A), the allowable credit is not $10,000 (10
percent of the purchase price) but is limited to $7,500. A and B may allocate the
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allowable $7,500 credit 55 percent to A and 45 percent to B based on their contributions
toward the purchase price, one-half to each based on their ownership interests in the
residence, or using any other reasonable method (for example, the entire credit to A or
B because both A and B are eligible to claim the entire allowable credit).
Example 3.
On April 15, 2008, A pays the entire $100,000 purchase price of a residence and
is the sole owner. Under § 36(b)(1)(A), the allowable credit is not $10,000 (10 percent
of the purchase price) but is limited to $7,500. On May 12, 2008, A transfers a one-half
interest in the residence to B as a tenant in common for $10,000. A may claim the
entire allowable $7,500 credit. Because B acquired B’s interest in the residence from A
in part by gift, B’s basis in the residence is determined under § 1015 by reference to A’s
basis in the residence. Therefore, B did not purchase an interest in the residence within
the meaning of § 36(c)(3), and no portion of the credit may be allocated to B because B
is not eligible to claim any portion of the credit.
Example 4.
A and B 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. Under
§ 36(b)(1)(A), the allowable credit is not $10,000 (10 percent of the purchase price) but
is limited to $7,500. However, B is not a first-time homebuyer within the meaning of
§ 36(c)(1). Therefore, no portion of the credit may be allocated to B because B is not
eligible to claim any portion of the credit. A may claim the entire allowable $7,500
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credit.
Example 5.
A contributes $75,000 and B 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. Under § 36(b)(1)(A), the allowable credit is not $10,000 (10 percent of the
purchase price) but is limited to $7,500. A’s MAGI is $100,000 and B’s MAGI is
$60,000. Because A’s MAGI exceeds the $95,000 MAGI cap, any portion of the credit
allocated to A would be reduced to $0. A and B may allocate the entire allowable
$7,500 credit to B because B’s MAGI is less than the $75,000 MAGI threshold and,
therefore, B is eligible to claim the entire allowable credit.
Example 6.
A and B 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. Under
§ 36(b)(1)(A), the allowable credit is not $10,000 (10 percent of the purchase price) but
is limited to $7,500. A’s MAGI is $80,000 and B’s MAGI is $60,000. Because A’s MAGI
exceeds the $75,000 MAGI threshold by $5,000, any portion of the allowable credit
allocated to A will be reduced by one-quarter, $5,000 (MAGI in excess of $75,000) /
$20,000. A and B may allocate the allowable $7,500 credit one-half to A and one-half to
B ($3,750 each) based on their contributions toward the purchase price of the residence
or their ownership interests in the residence. However, A’s $3,750 portion of the credit
is limited by § 36(b)(2) and is reduced by one-quarter ($3,750 x .25 = $937.50) to
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$2,812.50 ($3,750 - 937.50). Alternatively, A and B may allocate the allowable $7,500
credit using any other reasonable method (for example, the entire credit to B because
B’s MAGI is less than the $75,000 MAGI threshold and, therefore, B is eligible to claim
the entire allowable credit).
Example 7.
A and B, who are sisters, each contributes $50,000 towards the $100,000
purchase price of a residence and each owns a one-half interest as tenants in common.
Under § 36(b)(1)(A), the allowable credit is not $10,000 (10 percent of the purchase
price) but is limited to $7,500. A and B purchase the residence from their cousin, C. A,
B, and C are not related persons within the meaning of § 36(c)(5). Therefore, A and B
may allocate the allowable $7,500 credit one-half to A and one-half to B based on their
contributions toward the purchase price of the residence or their ownership interests in
the residence. Alternatively, A and B may allocate the allowable $7,500 credit using any
other reasonable method (for example, the entire credit to A or B because both A and B
are eligible to claim the entire allowable credit).
DRAFTING INFORMATION
The principal author of this notice is Christina M. Glendening of the Office of
Associate Chief Counsel (Income Tax & Accounting). For further information regarding
this notice, contact Ms. Glendening at (202) 622-4920 (not a toll-free call