Biden first time homebuyer tax credit
Buying your first home is an exciting prospect, and a great investment in this housing market. But, it can also be stressful and overwhelming as you try to understand your finances and qualify for a mortgage. This is where Biden’s first time homebuyer tax credit comes into play. We’re taking a closer look at what the Biden first time homebuyer tax credit is. With that, we’ll discuss who’s eligible for the credit, and how it works.
What is the Biden first time homebuyer tax credit?
The Biden first time home buyer tax credit was introduced as an Act in April of 2021. The goal was to offer first time homebuyers more support in the form of a tax credit. The credit got its name from President Joe Biden. Biden discussed a $15,000 first time homebuyer tax credit during the election in 2020. It’s important to note that this bill hasn’t been passed quite yet as it is still being reviewed by Congress.
In theory, when this tax credit is passed, the tax credit for first time home buyers will be equal to 10% of the home’s purchase price. With that, the home must be purchased as the buyer’s primary residence.
What makes this credit so special?
What makes the Biden first time home buyer tax credit so appealing, is that it’s refundable. Thus, if the credit lowered the buyers federal income tax to zero, that buyer would get the remaining credit amount back as a refund.
Who is Eligible?
Before getting too excited about that the Biden first time home buyer credit could do for your tax bill, be sure you meet the following criteria:
- First-time home buyers
- Must meet the given area’s median income limitations based on location and household
- Buyer must be purchasing a primary residence
- Buyer must be 18 years
- Home cannot be purchased from a relative
In addition to the requirements above, it’s also important to note there is a chance you’ll have to repay some or all of the homebuyer act’s assistance. For each year the buyer lives in the home, the repayment amount decreases by 20%. After five years, you are no longer responsible for any repayment of the Biden first time home buyer tax credit.
So, while it may be tempting to use this credit to purchase real estate, keep in mind that if you choose not to live in the home there are financial consequences.
How does the Biden first time homebuyer tax credit work?
This specific tax credit works to help make home ownership more affordable and accessible for low and middle income American families. Homeownership is important as the investment helps the owner build wealth over time.
This bill is similar to the Equity Act of 2021, as both seeks to provide an opportunity for building wealth in marginalized communities specifically. It’s important to also note that the Biden First-Time Homebuyer Act of 2021 is not a loan, instead it is a cash grant.
How to receive the credit:
Since this proposed federal tax credit is still a bill and not yet signed into law, the current documentation doesn’t specify how to claim the credit.
Past homebuyer credits have required an additional IRS form on top of the buyer’s federal tax filing. It’s likely the 2021 tax credit will require the same. Although, the Biden First Time Homebuyer Tax Credit is unique in that it’s retroactive to December 31, 2020.
This means home buyers who have already purchased a home can file an amended tax return and receive a cash payout once the bill is passed. Ultimately, the tax credit is applied directly to your federal tax bill. With that, married homeowners filing taxes separately can each only claim half of the total credit.
Is the First-Time Homebuyer Act the $25,000 program I’ve heard about?
In short, no it is not. The $15,000 first time homebuyer tax credit is often confused with the Down Payment Toward Equity Act of 2021. The Equity Act of 2021 is also for first time home buyers, but it is down payment assistance specifically. In contrast, the First Time Homebuyer Act is a federal tax credit. However, it’s possible to qualify for both programs and qualify for up to $40,000.
How do I know if my income it too high for the credit?
To meet the income requirements for this program, you much make less than 160% of your location’s average median income (AMI).
Do I have to repay the $15,000 tax credit if I have to move for work?
Yes, if your move is within the first 5 years of owning the home. Despite there being various reasons for a move, selling the home requires you repay at least part of the credit. However, there are certain exceptions for military transfers, or death.
If I’m a first-time home buyer but my partner is not, can we claim the first-time home buyer tax credit ?
Yes. The first-time home buyer tax credit can be claimed when you purchase the home with someone who is not a relative and only one of you is a first time home buyer. If this is the case, the credit would be cut in half and the first time home buyer would receive a $7,500 credit on their tax return.
Christopher has been been in the Real Estate industry for 8 years and has had the opportunity to close over 1,000 deals while acting as the Managing Broker for thousands more. Christopher is passionate about continuing to find ways to simplify, maximize, and serve Trelora’s clients exceptionally well and spends his time building teams to deliver high levels of service. When not doing real estate Christopher can be seen training for marathons and ultra relays with his 2 year old daughter, eating pizza, and drinking a steady stream of Diet Coke.