Buying a home for the first time can be exciting yet daunting. With rising prices and interest rates, attaining homeownership may seem more difficult than in years past.
Aware of the recent challenges, the Biden administration has proposed a $15,000 First-Time Homebuyer Tax Credit, which aims to offset some of the challenges facing new buyers today. Although not yet passed into law, this significant tax break represents a major opportunity for renters ready to leap into homeownership.
This comprehensive guide will explore everything you need to know about the First-Time Homebuyer Tax Credit. You will learn the basics of the credit, who qualifies, how to apply and how to maximize the benefits.
The $15,000 First-Time Homebuyer Tax Credit Act of 2024 offers a substantial incentive for prospective homebuyers. If you've recently felt the squeeze of rising prices and think that homeownership might be out of reach, this tax credit could help offset costs, making homeownership attainable for you and your family.
The First-Time Homebuyer Tax Credit is a proposed federal tax credit for qualifying first-time homebuyers. It would provide a refundable tax credit of up to $15,000 (or 10% of a property's value—whichever is less) that can be used towards a down payment and closing costs. The credit aims to make homes affordable.
To qualify for the entire $15,000 tax credit amount, you must meet eligibility rules including:
The tax credit phases out for households making over 150% of the area's median income or if the home exceeds 110% of the area's median purchase price. These limitations will be explained in more detail below.
There are several encouraging benefits to the proposed tax credit. Here are some of the headline beneficial features:
The tax credit could deliver financial flexibility and stability to qualified first-time homebuyers, making it easier to purchase a home in today's housing market.
Navigating the eligibility requirements for the First-Time Homebuyer Tax Credit is key to utilizing the program. Meeting the criteria guarantees you can apply and claim benefits.
The tax credit has precise income and home price requirements that determine if and how much buyers can claim.
Eligible household income depends on your area's median income (AMI) benchmark:
The home's purchase price must be:
To qualify for the tax credit, you must meet the Act's definition of a first-time homebuyer:
Applicants must be either:
This avoids situations with underage minors wrongly utilizing the program.
The home seller must be:
You cannot use the tax credit to purchase from relatives, as this would violate the intent behind this first-time buyer program.
This proposed tax credit is designed to support long-term homeownership for eligible buyers, not house flipping or real estate speculation. As a result, certain conditions apply if buyers sell or move within the first few years after purchasing.
Those claiming the credit would incur partial tax liabilities for changing their primary residence before four (4) years of ownership elapse. The proposed repayment program would work on a sliding scale, with 100% repayment due if you move within the first 12 months and 25% due within year four. However, the exact amounts due depend on the timing and circumstances behind the property transfer.
The legislation also outlines exceptions where early sales do not trigger these clawback clauses. Situations like the death of a co-borrower or certain military transfers can waive repayment requirements. Selling to unrelated buyers with more modest financial gains can also limit tax penalties solely to the actual profit gained rather than the total credit amount.
Lastly, the tax is limited to 10% of the total value of the property, which could prevent you from receiving the full $15,000 available.
You may wonder how you can claim this $15,000 tax credit if it becomes law. The good news is that accessing the funds requires minimal legwork.
Rather than completing a formal application, eligible recipients simply adjust their annual tax filings after closing on a home purchase. The credit takes effect on the final date of closing so that buyers can claim it on returns for that tax year. For example, if you finalize a home purchase in August 2024, you would claim the credit when filing 2024 tax returns in early 2025.
The IRS would then automatically assess your eligibility based on the First-Time Homebuyer Act criteria and issue you the credit amount by either reducing your tax liability or directly paying you the sum. So, purchasers meeting requirements simply notify the IRS rather than face a complex application process.
Alternatively, you can also claim the credit at closing with the help of an approved lender.
The tax credit is also set to be backdated should it become law. It will date back to December 31 of the previous year of its issuance into law, allowing you to amend your federal tax return and receive an adjustment or refund from the Treasury retroactively.
The proposed $15,000 federal tax credit offers flexibility to pair with other popular programs assisting first-time purchasers. Because it is a tax credit, it can supplement loan packages and grants addressing down payments and closing costs.
For example, applicants can combine it with favorable mortgage offerings for first-time buyers like VA, USDA or FHA loans. These options feature low or even 0% down payment requirements for eligible buyers. The tax credit provides an extra boost to make borrowing more affordable.
Additionally, Congress is considering a separate bill called the Downpayment Toward Equity Act that would furnish a $25,000 grant for related fees. If both this and the First-Time Homebuyer Tax Credit become law, you could see up to $40,000 in cumulative aid.
While the $15,000 First-Time Homebuyer Tax Credit Act holds promise for aspiring homeowners, it remains in the early stages of the legislative process.
The First-Time Homebuyer Tax Credit Act was introduced in April 2021, though that initial version did not pass into law. The bill was reintroduced in March 2024 in both the House (H.R. 7707) and Senate (S. 3940). As of early May 2024, the bill has 1 House cosponsor and 8 Senate cosponsors. It has yet to be scheduled for a vote in either chamber.
For the First-Time Homebuyer Tax Credit Act to become law, it must first pass votes in relevant committees before advancing to full votes in the House and Senate. If passed by both chambers, any differences between the House and Senate bills must be reconciled before going to the President's desk for signature.
Additional cosponsors and advocacy could raise its profile and chances of passing. Its precedents also lend credibility, as Congress enacted similar temporary tax credits during the financial crisis over a decade ago.
While its future remains uncertain, the First-Time Homebuyer Tax Credit Act proposes meaningful relief for tomorrow's homebuyers. We will update this resource when progress is made towards passing this impactful legislation.
As a first-time homebuyer, you'll be glad to know that the First-Time Homebuyer Tax Credit Act isn't the only piece of legislation aimed at assisting you. While it holds significant promise, understanding other proposals working through Congress provides helpful context on the range of benefits being explored.
For example, the DASH Act is making headway and would offer a similar $15,000 tax credit for those meeting eligibility criteria around income and past ownership thresholds. Its wider set of incentives around zoning reform and affordable housing construction may also indirectly assist aspiring homeowners.
The American Dream Downpayment Act also seeks to create tax-advantaged savings accounts, allowing you to set aside downpayment funds that grow tax-free over time. It takes inspiration from how college savings accounts operate and could give you a welcome head start on your savings.
Most significantly, the Downpayment Toward Equity Act under discussion would provide qualifying buyers with an impressive $25,000 grant to use for down payments and closing fees. Should it pass alongside the First-Time Homebuyer Tax Credit, you could access up to $40,000 in combined assistance.
So, while we await action on the items outlined here, know that several ideas are circulating to help you attain homeownership.
Housing legislation in the US is continuing to evolve. But, as a first-time homebuyer, keeping informed about proposals that could dramatically increase your chances of owning your first property is a smart move.
By staying updated on the progress of bills like the First-Time Homebuyer Tax Credit Act and others, you'll be positioned to make the most informed decisions when it comes time to purchase your first home.
At LGI Homes, we're here to support you through your home-buying journey. A great place to start learning more about what financial incentives might be available to you is our comprehensive homebuyer resources section. Alternatively, you can contact us directly for more personalized advice.
Remember, many of our new construction homes are eligible for multiple federal and state-backed first-time homebuyer programs, and our friendly team of New Home Consultants is committed to helping you leverage every opportunity. We look forward to assisting you in becoming a homeowner.