Owning a home is often considered a key part of the American dream. As such, the government has put in place a number of tax credits and incentives to encourage people to purchase homes. Tax credits can be valuable for eligible buyers, and it’s important to understand how they work before you apply. In this blog post, we’ll explain the basics of the first-time homebuyer tax credit and help you determine if you’re eligible. Keep reading to learn more!
What is the first-time homebuyer tax credit?
The first-time homebuyer tax credit is a federal tax credit that helps make homeownership more affordable for first-time buyers. On April 28, 2021, American lawmakers launched the First-Time Homebuyer Act of 2021. The bill means the revision of the IRS tax code to grant first-time home buyers up to $15,000 in refundable federal tax credits. The credit would be available for homes purchased since January 1, 2022, with no end date.
Who is eligible for the first-time homebuyer tax credit?
To be eligible for the credit, buyers must not have owned a home in the three years prior to purchasing their new home. In addition, there are some other requirements that should be met:
- Income requirements. Homebuyers must have an income that is no more than 60 percent above the median income for their location. This ensures that the credit is targeted toward those who are most in need of assistance.
- Only for a first home. The tax credit cannot be used for buying a rental property or a second home.
- Age 18 and above.
- Not-relative seller. The property should not be bought from a relative.
If passed, the bill would provide much-needed assistance to first-time home buyers who are struggling to enter the housing market. With housing prices on the rise in many parts of the country, the credit would help to make homeownership more affordable for many Americans.
How does the first-time homebuyer tax credit work?
Many people are not aware that they may be eligible for a tax credit when purchasing their first home. The tax credit is equal to 10% of the home purchase price. Since last year, the maximum tax credit amount for first-time homebuyers is $15,000.
This amount is based on a presumed 2% inflation rate and may change over the years. For example, by 2025, the maximum tax credit amount may be $16,236.
This tax credit can help make buying a home more affordable. In addition, the tax credit may also help to encourage people not to wait to buy homes and do it sooner. By providing a financial incentive, the tax credit may help to increase the demand for housing and help to improve the housing market.
How to qualify for the first-time homebuyer tax credit
Since the first-time homebuyer tax credit has not yet been signed into law, it is unclear how homebuyers will be able to claim the tax credit. However, it is likely that the process will be similar to that of the original credit, where homebuyers were required to file Form 5405 with their federal income tax return and an additional IRS form.
Homebuyers should consult with a tax professional to determine if they are eligible for the credit and to learn more about how to claim it.
First-time homebuyer tax credit repayment terms
The home buyer tax credit is a great way to save on a purchase, but it’s important to be aware of the rules surrounding it. Buyers who use the credit and then change their primary residence or sell their home within four years of purchase will owe a tax liability based on how long they held the property.
- If a buyer sells a house within one year after its purchase, they would owe taxes on 100% of the value of the credit.
- If a buyer sells a house within two years after its purchase, they would owe taxes on 75% of the value of the credit.
- If a buyer sells a house within three years after its purchase, they would owe taxes on 50% of the value of the credit.
- If a buyer sells a house within four years after its purchase, they would owe taxes on 25% of the value of the credit.
This is something to keep in mind when making a decision about whether to use the home buyer tax credit. With a little planning, you can avoid any surprises down the road.
FAQs
What is a tax credit?
Tax credits are special financial incentives that are designed to encourage certain types of behavior. For example, there may be a tax credit for businesses that hire new employees, or for individuals who buy or make certain energy-efficient improvements to their homes.
Tax credits can be either refundable or non-refundable. Refundable tax credits can be claimed even if the taxpayer does not owe any taxes; the government will simply issue a refund for the value of the credit. Non-refundable tax credits can only be claimed if the taxpayer owes taxes; if the taxpayer does not owe any taxes, they will not receive any benefit from the credit. Tax credits are generally more advantageous than deductions, because they reduce the amount of taxes owed on a dollar-for-dollar basis, rather than simply reducing the taxable income.
Are there any limitations to property type when applying for a home buyer tax credit program?
The first-time home buyer tax credit program can be applied to any home zoned for a residential property including trailer homes, mobile homes, and manufactured homes. The credit is available to anyone who hasn’t owned a home in the past three years, and it can be used to offset the cost of buying a property, and it can help pay for closing costs, points, or other eligible expenses. For many first-time home buyers, the tax credit makes purchasing a home more affordable.
Is the first-time home buyer tax credit active now?
As of today, the $15,000 first-time homebuyer tax credit is unavailable. The program is currently a congressional bill. It may pass into law within a few weeks or a few months. The bill has been proposed by several lawmakers and is currently being debated in Congress. If the bill passes, the tax credit will be available to eligible homebuyers who purchase a home on or after the date the bill is enacted into law. For more information on the first-time homebuyer tax credit, please consult your tax advisor or visit the IRS website.
Sum Up
The first-time homebuyer tax credit is a valuable tool for those looking to purchase a home. For many first-time homebuyers, the tax credit can be the difference between owning their own home and continuing to rent. As such, it is an important resource that should be taken advantage of.
