Are you familiar with the First-Time Homebuyer Tax Credit? This tax credit, (as of June 2022) is still a bill and has not yet been passed into law. The bill was introduced by lawmakers in 2021 as an IRS tax code, that if it passes, will grant first-time home buyers up to $15,000 in refundable federal tax credits! The credit is aimed to help low-and middle-income Americans attain homeownership. Rather than having to wait until you file your return to see the funds, the funds would be advanced to the homebuyer at the time of closing.
Experts say that this bill could pass by the end of 2022 and would fulfill one of President Biden’s key campaign promises – to make homeownership more accessible to the millions of renters who seek the American dream of owning a home.
Here’s how it works:
Ultimately, the tax credit would help lower-income families to build long-term wealth. One benefit of the application process is any eligible first-time home buyers will not be required to apply for the $15,000 first-time homebuyer tax credit – the credit is earned automatically. If you meet the program’s eligibility requirements, the IRS will credit your tax bill for the amount you’ve earned.
Assuming a 2 percent inflation rate, the maximum first-time home buyer tax credit would increase as follows over the next five years:
- 2021: Maximum tax credit of $15,000
- 2022: Maximum tax credit of $15,300
- 2023: Maximum tax credit of $15,606
- 2024: Maximum tax credit of $15,918
- 2025: Maximum tax credit of $16,236
What Does the New Act Mean for Buyers?
One of the criteria for the proposed first-time homebuyer credit is income level. To qualify for refundable tax credit, you’ll need to show that your earnings don’t exceed the upper threshold for access to the first-time homebuyer tax credit program. Your income should be no higher than 60% above the median income for your location. For example, if the median income in an area is $50,000, a home buyer who files their taxes as a single-earner wouldn’t qualify if their household income is more than $80,000 per year. This document sheds some light on the median income for most areas in the U.S.
Understanding Qualifications and Constraints:
In order to qualify for the tax credit, there are some a very specific criterion:
Must be at least 18 years of age, or married to a person who is 18 years of age
Homes purchased through a family member do not qualify.
Tax credit is only available once and not for future home purchases
Eligible home buyers must earn an income that’s no more than 60 percent above the median income for the area
Caution for those on the Move
The first-time homebuyer tax credit is not geared towards investors or home flippers. In addition, if you move within four years of the house purchase you will have to pay some back. If you sell or move within year one, you must repay 100% in taxes / $15,000. Each year the percentage decreases to 75%, 50%, then 25%.
While the First-Time Homebuyer Act of 2021 is still under consideration, it’s understandable for buyers to want to explore other options. Here are some alternative grants and specialized programs for first-time homebuyers that may also be beneficial.
As always, the tax experts at Jeanine Hemingway, CPA are available to answer your questions and help you minimize your taxes. If you should have more questions or want to explore ways to maximize additional tax credits and deductions, contact us today.