How the Home Buyer Tax Credit Works

D.C. Tax Help Tax Forms Install Adobe Acrobat Reader to download: Form 8859 for D.C.'s first-time homebuyer credit Forms for individual and corporate income tax. From The Post Taxing the District's businesses D.C. not rated 'wealth-friendly' Taxes created a budget surplus Fewer people means less revenue Investing in D.C.'s growth

The D.C. first-time buyer tax credit took effect Aug. 5. Although final Internal Revenue Service regulations have not been written, the House Ways and Means Committee in early October agreed to a number of technical corrections that clarify ambiguities in the original legislation. As it stands now:

The credit is available to first-time District home buyers. The legislation defines a first-time buyer as someone who has had "no present ownership interest in a principal residence in the District during the one-year period ending on the date of purchase."

The one-year test differs from some other first-time buyer benefits available nationally. If a person is married, his or her spouse must meet the same test. This means that someone who currently owns a home in the suburbs is eligible for the credit. Someone who previously owned a D.C. home but has been renting a principal residence for more than a year also would be eligible.

The credit applies to purchases completed from Aug. 5, 1997, until Dec. 31, 2000. It is for one-time use only. Unlike some other tax incentives, it applies to buyers in any D.C. neighborhood, not just economically distressed areas.

The amount of the credit varies according to the buyer's income. A single taxpayer with modified adjusted gross income of less than $70,000 is eligible for the entire $5,000 tax credit. The credit phases out between $70,000 and $90,000 in modified adjusted gross income. Joint filers are eligible for the entire credit with modified adjusted gross income of less than $110,000; the benefit phases out between $110,000 and $130,000. Unmarried taxpayers who purchase a residence jointly will be allowed to split the credit.

The incentive is a credit, not a tax deduction. It directly reduces the amount of federal income taxes paid by the amount of the credit. Taxpayers claim it when they fill out their tax return for the year of the purchase -- that is, people who buy this year will file for the credit on the return that is due to the IRS on April 15, 1998.

The credit is nonrefundable, but unused portions can be carried over to future tax years.