Q: Tax Playa, I am looking to buy a home in the District of Columbia. I have heard there is a tax credit. How does it work?
Ron, San Diego CA
A: Within certain limits, you can take a tax credit (a reduction of federal income taxes paid) of up to $5000 for buying a home as a primary residence within the District of Columbia...
For more information on the credit, see the form and instructions for IRS Form 8859, District of Columbia First-Time Homebuyers Credit.
1. Who Claims It: Anyone who purchased a main home (primary residence) in the District of Columbia, and did not own any other main home in D.C. in the year prior to claiming the credit. You can only claim the credit once.
2. Credit Amount: $5000. This is the total credit for the property. If more than one taxpayer bought property together, the credit can be split any way they would like.
3. Income Phaseout: $70,000-$90,000 ($110,000-$130,000 if MFJ). Credit phases out $1 for every $4 you are into the range.
4. Basis Reduction: The capital basis in the home is reduced by the amount of credit claimed.
5. No Impact on D.C. Income Taxes: This is a question I get all the time. The D.C. Homebuyer's Credit is a federal credit, and has no impact whatsoever on the D.C. income tax.
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