@TaxGuyinPA
This is an old discussion, and there are at least two questions with different facts.
In reviewing your answer and my previous comments, I would slightly alter what I said:
For example, at the university I used to work at, the city wanted to improve two run-down neighborhoods near the college, so the city, the college, and a bank, worked together to give $3000 each ($9000 total) in downpayment assistance to college employees who moved there. In the case of the college, their $3000 was required to be treated as part of the employee's taxable compensation. In the case of the city and the bank, the assistance was in the form of a loan that was forgiven if you lived in the home for a certain period of time. At the point when the loan was forgiven, a 1099-C was issued and the forgiven loan became taxable income.
In the example I give, I would still view the $3000 incentive from the college as taxable wages. The $3000 from the city is a taxable grant (becomes taxable when forgiven). But I would now take the position that the $3000 from the bank could probably be treated as a non-taxable discount, especially if it was applied to the closing costs.
Any other grant program needs to be evaluated as to what it actually does, how it works, and where the money comes from.
