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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?

Forum|Forum|5 years ago
February 1, 2021
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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?

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Best answer by ToddL99

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.

T

ToddL99Answer

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.

W

wudan880121Author

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?

I

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:

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

K

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!

O

Opus 17

Employee

@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.

K

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?