DC $5,000 first-time homebuyer tax credit regaining popularity

For District of Columbia residents who missed the April 30 deadline for the $8,000 Federal First-time homebuyer Tax Credit, there's another tax credit to cash in on.

Many have forgotten that DC offers a $5,000 tax credit to anyone who hasn't owned a main home in the District during the one-year period ending on the date of purchase. Since the DC Tax Credit is smaller and couldn't be taken simultaneously with the Federal Tax Credit, it has largely been ignored.

But the Federal Tax Credit required a ratified sales contract dated prior to April 30, 2010 and for settlement to take place by June 30, 2010. Now that it's expired, the DC Tax Credit will regain some of its appeal during the second half of this year. Additionally, the DC Tax Credit has not expired since it began in 1997.

Here is information taken from the 2009 IRS Form 8859, and so it applies to the 2009 taxes but can be used as a general guideline since it should be similar for the 2010 tax year (information for the 2010 tax year has not yet been released).

Frequently asked questions about the DC Tax Credit

Who is eligible for the DC Tax Credit?

Generally, the DC Tax Credit can be claimed in the year that the principal residence has been purchased as long as the purchaser(s) did not own another principal residence in the District of Columbia during the one year period ending on the date of purchase.  NOTE: Unlike the Federal Tax Credit, the DC Tax Credit only requires that you be a DC First-time Homebuyer.  Even if you are ineligible for the Federal Tax Credit since you own a property in another jurisdiction, you may be eligible for the DC Tax Credit.

How much is the credit for?

The maximum credit is for $5,000, or $2,500 if married filing separately.  The credit begins to phase out when the modified adjusted gross income exceeds $70,000 ($110,000 if married filing jointly) and ends at $90,000 ($130,000 if married filing jointly).  

Are there any exclusions?

Yes. You cannot claim the credit if you are eligible to claim the Federal Tax Credit on IRS Form 5405 or if you purchased your home from related persons or by gift or inheritance.  Related persons include, among others, grandparents, parents, spouses, children and grandchildren.  Also, the DC Tax Credit can only be claimed once, so it is not available if already claimed on another property.

Where can I get more information?

In depth information can be obtained from the District's Office of Tax and Revenue or by reviewing the IRS Form 8859.

History of the DC Tax Credit

The Taxpayer Relief Act of 1997 was signed by the president on August 5, 1997. The tax credit has been renewed every year ever since, granting taxpayers in the District of Columbia who have not recently owned a home eligibility for a one-time tax credit of up to $5,000 to be claimed against federal income taxes.

The tax credit is reported on Form 8859, and the taxpayer must file Form 1040 to claim this credit.  Download the DC First-Time Homebuyer Credit Tax Form 8859.

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