The IRS has issued Notice 2009-12, explaining how the Sec. 36 first-time homebuyer credit should be allocated between unmarried taxpayers who buy a principal residence together.
Sec. 36 was added to the Code last year by the Housing and Economic Recovery Act of 2008, P.L. 110-289. It gives first-time homebuyers a refundable credit of 10% of the purchase price of the home, up to $7,500 ($3,750 for married taxpayers filing separately). The credit phases out for homebuyers with modified adjusted gross income (AGI) between $75,000 and $95,000 (between $150,000 and $170,000 for joint filers). The credit applies for both regular tax and AMT purposes.
To be eligible, a taxpayer must be a first-time homebuyer, defined as an individual (and, if married, the individual’s spouse) who has not had a present ownership interest in a principal residence during the three-year period ending on the date the principal residence is purchased (Sec. 36(c)(1)). Unmarried individuals may jointly purchase a residence and allocate the $7,500 credit between them (Sec. 36(b) (1)(C)).
In the notice, the Service explains that if two or more taxpayers who are not married purchase a principal residence and otherwise satisfy the Sec. 36 requirements, the first-time homebuyer credit may be allocated between the taxpayers using any reasonable method. The IRS says a “reasonable method” is any method that does not allocate any portion of the credit to a taxpayer who is not eligible to claim that portion.
A reasonable method includes allocating the credit based on the taxpayers’ contributions toward the purchase price of the residence as tenants in common or joint tenants or the taxpayers’ ownership interests in a residence as tenants in common. The notice provides several examples of how this allocation could work.