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?

[wudan880121]

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?

[ToddL99 · Accepted solution]

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.  

[wudan880121]

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?

[Irene2805]

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:

1. Enter the 1099-MISC in your return; AND
2. Make another entry with a negative number to cancel out the payment.

[wudan880121]

Thanks. I have follow both your suggestions!

[webbie2021]

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?

[ToddL99]

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.  

[SusanCurranFinancial]

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.

[Crosska 1983]

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 ! 

[Opus 17]

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@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-ov...

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.

[katherrera9]

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!

[katherrera9]

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?

[Crosska 1983]

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 

[Crosska 1983]

I think I could make peace with 15.3%, I’m fearing 33% which would make me owe several thousand 

[Opus 17]

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@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.