The program is that Eligible homebuyers can receive 3% of the purchase price for their primary residence (maximum $10,000), and BANK of AMERICA finally issued a 1099-MISC to me for this program funds. So my question is that is this Down Payment Grant program considered taxable income?
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.
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.
Thanks so much for your answer. From you answer and my unserstanding, the down payment assistance/grant from the bank of america (my loaner) is not a seller-funded program, and therefore the 1099-MISC I received from BANK of AMERICA is not considered as taxable income?
As ToddL99 indicates above, down payment assistance is not considered taxable income. Since you were issued a 1099-MISC a copy also goes to the IRS. You could not include it in your return, but then you will be hearing from the IRS in the future because they don't see it in your return.
In order to keep the IRS informed and happy, follow the instructions ToddL9 lists above:
I followed the instructions. When I go to submit my taxes, TurboTax says I cannot use a negative number in that entry. It got past the 'review and error check" but just as I was submitting it says that entry cannot be a negative number. Suggestions?
The "Other Reportable Income" interview will accept a negative number (you may be trying to enter the "offset" in the 1099-MISC interview).
You have to report the income first, as a 1099-MISC, and then report the offsetting amount as "Other Taxable 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.
Hi Todd,
The IRS resource you quoted above is actually preceded by the Question:
"Is down payment assistance provided under a program sponsored by a tax-exempt organization includable in the homebuyer's income?"
So your answer only applies to the tax-exempt organization situations (and the seller-funded programs also mentioned by the IRS resource). If the down payment assistance was provided by an entity other than a tax-exempt organization or the seller, then it would be taxable. i.e. If a bank provided the funds then it is taxable.
Ahhhhhh I’m having this same crisis!! I received $8k in down payment assistance from BOA and $5k closing cost grant from BOA and just got first 1099. I had no idea. Is mine also not seller funded bu my lender is BOA also? Also prob gonna need
to have someone so my taxes
This year bc of this !
@Crosska 1983 wrote:
Ahhhhhh I’m having this same crisis!! I received $8k in down payment assistance from BOA and $5k closing cost grant from BOA and just got first 1099. I had no idea. Is mine also not seller funded bu my lender is BOA also? Also prob gonna need
to have someone so my taxes
This year bc of this !
This is a complex area, because the IRS is mainly concerned with a scheme they consider abuse of the 501(c)(3) and mortgage fraud, in which the seller "donates" money to an organization, which then gives the same money to the buyer as a "grant." This is what they mean by seller-financed down payment assistance. It's a scheme and a scam because it makes the bank think the borrower has more funds than they really do, and the organization takes a cut of the money as a fee and calls themselves an exempt organization, which they are not. https://www.irs.gov/charities-non-profits/down-payment-assistance-programs-irs-compliance-program-overview
For example, John wants to buy a house from Jim for $100,000 but has no downpayment. Jim lists the selling price as $120,000 and "donates" $20,000 to the charity. The charity gives John a $20,000 "grant", which John uses to qualify for a mortgage. Jim gets the same selling price he wanted, John really only pays $100,000, but gets the mortgage without actually putting in any of his own money, and the "charity" pockets a finders fee.
This arrangement has nothing to do with affordable housing grants from your town or your bank. 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.
I can't think of any reason why a legitimate down payment assistance program (not funded by the seller through a circular scam) would not be taxable income. After all, the IRS position is that all the money you take in is taxable income, unless there is a specific law that says otherwise. (If you find a dollar bill on the street, you're supposed to report it as taxable income.)
If you got $13,000 of assistance, you probably owe tax. But that still means you got about $10,000 in free money to buy your house, which is pretty good.
Hello,
For those that went through this experience, can you please share if you indeed had to pay taxes on Bank of America's Down Payment Grant Program? I am currently being offered this grant, so it would be great to receive first-hand experience. Were you able to make an entry and cancel out the grant amount? Or if you did have to pay taxes on it, was the tax rate on it 15.3%? Please help!
Hi there,
May I ask if you received a 1099 MISC form on both grants? The Down Payment Grant Program (down payment grant) AND America's Home Grant Program (closing costs grant)? OR just the Down payment grant?
So far I’ve only received the one 1099 for the down payment grant. My lender seems to think I’ll be getting another one
I think I could make peace with 15.3%, I’m fearing 33% which would make me owe several thousand
@katherrera9 wrote:
Hello,
For those that went through this experience, can you please share if you indeed had to pay taxes on Bank of America's Down Payment Grant Program? I am currently being offered this grant, so it would be great to receive first-hand experience. Were you able to make an entry and cancel out the grant amount? Or if you did have to pay taxes on it, was the tax rate on it 15.3%? Please help!
Miscellaneous or "other" income is taxed at your regular income tax rate, which might be 10%, 12% or 22%, for most taxpayers, and depending on your income, filing status, and other deductions. The special 15.3% tax rate is for self-employment tax and is in addition to income tax, but it only applies to income earned from working (like a side gig) and not to this type of "other" income. If you are charged self-employment tax, you have entered the 1099 in the wrong place in Turbotax.
Thank you for your reply! The Reason I ask is because on the BoA website, it only mentions this important tax info on the down payment grant, but not on the closing costs grant. My lender is telling me it only applies to the down payment grant too.
I have not accepted this grant yet, but if I do, it would affect next year's filing. Thank you for your explanation on the tax rate difference. So if I did accept this grant, most likely, on which box on my 1040 form will this go to?
Most likely your income will be in Box 3 of the form 1099MISC you will receive from the bank. You are not required to pay Self-Employment taxes on this amount. So, follow the instructions below that applies to your situation.
It depends what type of miscellaneous income you are referring to. Was it reported on a 1099-Misc?
Box 3
Box 7
To Enter Form 1099-MISC:
1. Select "Business" at the top of the screen
2. Choose "Continue", then "I'll choose what I work on"
3. Select "Start" next to "Business Income and Expenses"
4. Select "Edit" next to your business name
5. Scroll down to “Business Income” and select “Start”
6. Now select "Start/Update" next to "1099-MISC Income"
Closing costs are a little more complicated. Anything that the bank charges you, they can do for free or give you a discount and that is not taxable, even if they put it on the statement in the form of a discrete grant. For example, we might assume that there is a $500 application fee, $500 bank attorney fee, a $400 appraisal fee, and $1000 fee for title search and title insurance. That’s $2400 of bank fees, and if the bank gives you a $2000 discount, that’s not taxable, no matter how they put it on the statement.
If the bank gives you more off the closing cost than their fees, that might be taxable, but it would depend on the exact situation. For example, if the bank gives you cash to fund your escrow account for future tax payments, that’s probably taxable income because it’s free money to you and not just a discount. If the seller pays your closing costs, that’s treated as an adjustment in the purchase price and is also not taxable. (If you buy a house for $100,000, and the seller pays $3000 of your closing cost, then you were really only paying $97,000.)
I can’t be more specific without knowing exactly what the grant or rebate or discount is supposed to pay for.
Doing my taxes now and my BofA lending agent advised: Good News… there is no tax obligation on the $7,500 so there is no 1099 issued.
I see two different opinions here. How did you end up reporting as taxable or non taxable? Thanks!
No this isn't taxable income. Please view this awesome post from our esteemed Expert Toddl99 as he explains how to report this as non-taxable income. Here is an excerpt from his post.
Enter the information as follows in the 1099-MISC interview:
Now let's make that money non-taxable.
Normally a reasonable person may ask, why report this at all. It is because you received the 1099 MISC that has also been filed by the IRS. It must be reported but since it isn't taxable, it can be backed out of income that has been reported.
To clear the error message, you must answer the questions that follow the entry screen for the 1099-MISC form. On the screens that follow, your answers to the questions will determine where on your tax return your 1099-MISC will be populated.
Please follow the instructions below:
Once complete, your 1099-MISC will flow appropriately and the error message should be cleared.
@Crosska 1983
My opinion is that Bank of America should've issued a 1099-C to show the 3% as cancellation of debt. You report the amount as taxable income on your return, then take the Qualified Principal Residential Indebtedness Exclusion on Form 982 to reduce the basis of the home and avoid paying the tax on it.
Since they issued a 1099-MISC though, I agree that the easiest way is to report a net profit of zero on Schedule C and to not worry about it unless the IRS sends a letter.
There are two aspects to this program though that are being confused. The program name is the Bank of America Community Homeownership Commitment. There is a (1) Down Payment Grant Program, and (2) Home Grant Program.
The down payment grant program is what the original person is asking about. This is the 3% "grant". Their advertising materials indicate that it must be used for a down payment. Then the Home Grant Program is a separate $7,500 lender credit that is used towards closing costs and title insurance. It sounds like they are not issuing any 1099's for the $7500.