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?

[katherrera9]

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. 

[katherrera9]

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? 

[Cynthiad66]

@katherrera9

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

• Click on Wages and Income
• Continue and I'll Choose What I Work On
• Scroll down to Other Common Income
• Next to "Income from Form 1099-MISC", click the start (or update) button
• Enter the amounts and information from your 1099-MISC

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"

[Opus 17]

@katherrera9 

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.

[Cbowman89]

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.

[Ggaga]

I see two different opinions here. How did you end up reporting as taxable or non taxable? Thanks!

[DaveF1006]

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:  

1. Enter the 1099-Misc in the Other Common Income  section of wages and income or income and expenses.  
2. Go to other common income>1099 MISC
3. Enter the 1099 MISC
4. When it asks for the reason, indicate it's a Bank of America Down payment Grant
5. When it asks for uncommon Situations, say none.
6. Next screen indicate does not  involve work like your main job,
7. Answer the next screen and then the next one will ask if there was an intent to make money.  Here say no.
8. The money will now be reflected in line 10 of the 1040. 

Now let's make that money non-taxable.

1. Now go to Less Common Income> Miscellaneous Income>
2. Now go to Other reportable income.
3.  Enter "Bank of America Down payment Grant" in the description field and enter the amount of your 1099 MISC as a negative amount. Enter this as -XXXX.XX. Enter actual amount after the minus sign and not those X's.
4. After this is posted, there will be an adjusting entry reported in line 8Z of Schedule 1 and the income from the 1099MISC will not be reflected in Line 10 of the 1040. 

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.

@Ggaga

[Crosska 1983]

I’m trying this but getting this 

[LenaH]

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:

1. Open or continue your return, if you're not already in it.
2. Search for 1099-misc and select the Jump-to link.
3. Edit your 1099-MISC.
4. Continue past the amounts already entered.
5. Describe the reason for this 1099-MISC.
6. Answer Does one of these uncommon situations apply?
7. Answer Did this involve work that's like my main job?
8. Answer How often did you get this income?
9. Answer Did this involve an intent to earn money?
10. Answer the remaining on-screen questions.

Once complete, your 1099-MISC will flow appropriately and the error message should be cleared.

@Crosska 1983

[Andrew Magee]

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.

[TaxGuyinPA]

FWIW, I disagree with your analysis here. While it was in answer to a question regarding grants through NFPs, the answer stated generally, and was left open. Further, they preceded to discuss seller financed grants, which would have nothing to do with NFP grant programs. My interpretation of their answer is that "generally" expands past the scope of NFPs.

Logic states that a bank loan is an incentive...like a discount. It is largely off setting closing and mortgage related fees that would be considered basis adjustments. Accordingly, I think the correct approach is to treat it as a basis offset, as you would the price of something you purchase.

If the IRS would like to argue otherwise, I'd reconsider when challenged...but until that point, I'd offset the income. There's no need to make an IRS argument for them, and I'd hardly call this argument a violation of professional standards.

[Opus 17]

@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.  

[vllybll675]

so i have the same thing from chase but litterally just got the form onlnie ,its for 2022 taxes do i need to ammend the taxes?

[AbrahamT]

Based on the information presented earlier by ToddL99, because the down payment assistance is not considered taxable income and when you do get the income in the form of a 1099MISC, you report it on one side and enter it as a negative adjustment on the other side so it zeros itself out and no tax gets computed on it.  

You have to report the income first, as a 1099-MISC, and then report the offsetting amount as "Other Taxable Income".

That being said, there would be nothing to amend for the 2022 tax situation.