DC First-time Homebuyer Tax Credit: the forgotten credit

With all of the focus on the $8,000 Federal First-time Homebuyer Tax Credit (“Federal Tax Credit”), many have forgotten that DC offers a First Time Homebuyer Tax Credit (“DC Tax Credit”) as well. Since the DC Tax Credit is smaller ($5,000) and cannot be taken simultaneously with the Federal Tax Credit, it has largely been ignored.

Since the Federal Tax Credit requires a ratified sales contract dated prior to April 30, 2010 and for settlement to take place by June 30, 2010, the DC Tax Credit will regain some of its appeal in the second half of the year. Here is information taken from the 2009 Tax 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.

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).  NOTE: The income limitations are lower than the Federal Tax Credit income limitations.

Are there any exclusions?

Yes. You cannot claim the credit if you are eligible to claim the Federal Tax Credit on 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?

More information can be obtained from the IRS website or by reviewing the IRS Form 8859.

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