First time home buyer grant

[Ggaga1]

I participated a down payment grant program from bank of america, and received a 1099-MISC from them. So is this Down Payment Grant program considered taxable income?

[Paul_W1]

Hi Ggaga1,

In general, 1099-Misc will be taxable income.  Can you look at box 1 or 3?  Most likely it sounds like box 3.  Some grants are taxable and some grants are not.  It will just depend.  Based upon what you are providing, it sounds like BofA is considering that grant as taxable income.  A brief research on their website seems to indicate that this is a loan program to receive this grant.  Is the 1099-Misc for 2021 or 2022.  Hope the information is helpful.

[MariaDG1]

Hello Ggaga1!  Thanks for participating in our event today.  Congratulations on your home purchase! This is an excellent question that applies to many people.  Generally only down payment assistance provided by a non-profit organization is tax free.  Typically down payment grants provided by a bank will be considered taxable income. They may not make this clear, as it is often buried in the small print somewhere. When you receive a 1099-misc from the bank, a copy will go the IRS also.  This means you must report this income on your tax return.  This is easy to do in Turbotax.  

Enter the information as follows in the 1099-MISC interview: 

-Enter the 1099-Misc under  Other Common Income  from the Income and Deductions page 

-For the description, enter "Down payment grant"  

-Be sure to select that it  does not  involve work like your main job, and that it  did  not  involve an intent to make money

-The income will be reported on schedule 1 and line 8 of your 1040. It will be taxed at your normal rate for ordinary income, which depends on your tax bracket.

[Ggaga1]

Thank you for your reply! What do you think of the following approach?

No, down payment assistance grants are not considered taxable income.  If you received a Form 1099-MISC and the amount paid is added to your taxable income when you enter it in the 1099-MISC interview, you will have to make an adjusting entry to remove it.

According to the IRS, "Generally, down payment assistance will not be included in the homebuyer’s gross income for federal income tax purposes.  However, if the buyer receives down payment assistance from a seller-funded program, the homebuyer must reduce the cost basis of the home because the down payment assistance represents a rebate or reduction in the purchase price thus lowering the homebuyer’s cost basis under Internal Revenue Code section 1012."

See Is down payment assistance includable in the homebuyer’s income?

Enter the information as follows in the 1099-MISC interview:  

• Enter the 1099-Misc in the Other Common Income  section of Income and Deductions. (Enter "1099 misc" in the Search Box and Select "Jump to 1099 misc form")  

• For "Description", enter "Down payment grantt"  

• Also check that it does not  involve work like your main job, that it  did  not  involve an intent to make money, andis not a recurring payment (received in the past or expected in the future) (these questions only apply to active, not passive, income).  

• The income will be reported on line 8 of Form 1040 of your return (Other income from Schedule 1, Line 9).  

To enter the "adjusting entry":  

• Go to Less Common Income, Miscellaneous Income and Other reportable income. Enter "Lawsuit settlement" in the Search Box and Select "Jump to lawsuit settlement" to get to this screen 

• Continue to the screen "Other Taxable Income". Enter the description as "Down Payment Grant Offset" and the amount as a negative number. Entering "- $10,000" (example) here will offset the amount reported on the Form 1099-MISC. These are NOT wages.  

[MariaDG1]

This approach is not advisable.  You received the 1099-Misc because the income is taxable.  It is not permitted to create a negative entry to subtract the amount from your taxable income.  If you click the link to the IRS page in that response, you will see that it is specifically referencing down payment assistance from tax exempt organizations.  I believe the poster failed to take that into account.  They were assuming that a 1099 had been issued in error for income that was not actually taxable.  Even if that was the case, the correct approach would be to have them correct it, not enter a fictitious negative entry in the tax return.  Its important to report everything accurately in a tax return to avoid audits and penalties in the future. 

[Ggaga1]

I understand. Thanks for taking a second look:)