DC First-time Homebuyer Tax Credit

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 has not owned a main home in the District during
the one-year period ending on the date of purchase. An individual making less than $90,000 is eligible for at least some
tax relief. If married and filing jointly, the ceiling increases to $110,000.

Since the DC Tax Credit is smaller and couldn't be taken simultaneously with the Federal Tax Credit, it has largely been
ignored. Now that the federal credit has expired, the DC Tax Credit, which has not expired since it took effect in 1997, will
regain some of its appeal during the second half of this year.

Frequently Asked Questions

Who is eligible for the DC Tax Credit?

Unlike the Federal Tax Credit, the DC Tax Credit only requires that you be a DC First-time Homebuyer. Even if you own a
property in another jurisdiction, you may be eligible for the DC Tax Credit.

Who May Claim the Credit?

• You purchased a main home during the tax year in the District of Columbia; and
• You (and your spouse if married) did not own any other main home in the District of Columbia during the 1-year
period ending on the date of purchase.

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.

If you constructed your main home, you are treated as having purchased it on the date you first occupied it. Your main
home is the one you live in most of the time. It can be a house, houseboat, house trailer, cooperative apartment,
condominium, etc.

However, you may not claim the credit if any of the following apply:

• You acquired your home from certain related persons or by gift or inheritance. For details, see section 1400C(e)
(2).
• Your modified adjusted gross income (see the instructions for line 2) is $90,000 or more if single, married filing
separately, head of household, or qualifying widow(er); or $130,000 or more if married filing jointly.
• You previously claimed this credit for a different home.

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I. In General

The Act allows first-time homebuyers of a principal residence in the District a one-time tax credit for the taxable
year of up to $5,000 of the amount of the purchase price. In other words, the maximum tax credit is $5,000.

Example: If a principal residence only costs $3,000, then the allowable credit amount would be $3,000.

The maximum tax credit amount, however, is reduced from $5,000 to $2,500 for married taxpayers filing
separately.

II. Purchase Price

Purchase price means the adjusted basis of the principal residence in the hands of the purchaser on the date the
residence is purchased. The date of acquisition is considered to be the date on which a binding contract to
acquire the residence is entered into or the date on which construction of the residence commenced.

III. First-time Homebuyer

An individual is considered a first-time homebuyer if such individual (and if married, such individual’s spouse) had
no present ownership interest in a principal residence in the District during the 1-year period ending on the date of
the purchase. An individual may be considered a first-time homebuyer only once.

IV. Principal Residence

Generally, a taxpayer can have only one principal residence at a time. To be considered a principal residence, the
residence must be physically occupied by the taxpayer. A principal residence is not limited to a house; it also
includes a houseboat, trailer, cooperative apartment, or condominium.

In a situation where the taxpayer alternates between two homes, the home that he or she occupies the majority of
the time will be considered the taxpayer’s principal residence.

V. Purchase

The term "purchase" means any acquisition, meaning the acquisition of an existing dwelling or the construction of
a new residence. Any acquisition from a related person by gift or inheritance, however, is not deemed a
"purchase" within the meaning of the Act. Related person means a spouse, ancestor, or lineal descendant; it does
not include sisters or brothers.

VI. Phaseout

The credit phases out for individual taxpayers with adjusted gross income between $70,000 and $90,000
($110,000 to $130,000 for joint filers). Accordingly, no credits are available for single individuals with incomes in
excess of $90,000 or for married couples filing jointly with incomes in excess of $130,000.

Example: Alice and Bob Jones are a married couple filing jointly. They are first-time homebuyers in the District.
Their adjusted gross income is $120,000. The Jones’ allowable credit is $2,500 or $5,000 - [$5,000 x [($120,000 -
$110,000) / $20,000]]. Therefore, the basis of the Jones’ home must be reduced by $2,500, the amount of the tax
credit.
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5335 Wisconsin Avenue, NW, Suite #700, Washington, DC 20015

Phone: (202) 362-1500 Fax: (202) 362-5901 Website: www.federaltitle.com
 VII. Credit Limitation and Carryover

Any credit not used because the taxpayer has insufficient tax liability in the year of purchase may be carried
forward to reduce tax liability in any following year until all the credit has been used. The unused credit, however,
may not be carried back to prior years.

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.

History of the DC Tax Credit

The Taxpayer Relief Act of 1997 (the "Act"), was signed by the President on August 5, 1997. Taxpayers who have not
recently owned a home in the District may be eligible for a one-time tax credit of up to $5,000 of the amount of the
purchase price against federal income tax.

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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5335 Wisconsin Avenue, NW, Suite #700, Washington, DC 20015

Phone: (202) 362-1500 Fax: (202) 362-5901 Website: www.federaltitle.com