Good news! President Joe Biden’s $15,000 first-time homebuyer tax credit is now officially a bill; the only step left is to pass it as a law. With this information circulating, you may be wondering what this means for you. While the guidelines are not finalized yet, here is what you should know about the initial proposal.
For Starters – What is a Home Buyer Tax Credit?
A tax credit directly reduces your actual tax bill. This is different from a deduction, which lowers your taxable income. This is good news for the future. For example- if you owed $20,000 in taxes and claimed the first-time homebuyer tax credit in full (which is $15,000), you would owe JUST $5,000 for that year’s federal taxes.
It gets even better… the homebuyer tax credit is refundable and can put money back into the pockets of homebuyers. For example, if you owed $10,000 in taxes and claimed the $15,000 tax credit, you would receive a tax refund of $5,000 after filing your tax returns.
There are many benefits to homebuyer credits in general. In a report co-authored by Benjamin Harris, an economic advisor to President Biden, some benefits of these tax credits include labor force gains and encouragement of homeownership.
Requirements for Biden’s First-time Homebuyer Tax Credit
Okay, this sounds great so far but what are the requirements. Remember, these requirements are not official quite yet, but this bill does look very promising.
As of now, the requirements are as follows:
- Make no more than 160% of your area’s average median income (AMI).
- You must be a first-time homebuyer OR have not owned a home in the last three years.
- You must occupy the property as your primary residence for a minimum of four years.
About Biden’s Tax Credit
If the act passes, first-time homebuyers could claim their one-time tax credit of 10% of their home’s purchase price (up to $15,000). In contrast to previous first-time homebuyer credits, buyers would not have to repay these funds (as of the current guidelines). However, the buyer would need to live in the house as their primary residence for at least four years; if they failed to do so, they would need to repay these funds.
The bill’s sponsors expressed that this bill is an effort to reduce the barriers to home ownership and aid in the fight for equality in the housing market.
Biden’s proposal even suggests that the $15,000 tax credit be provided at closing, potentially helping homebuyers with their down-payment cost or closing fees.
Kim Dula, a Managing Partner of Friedman’s Accounting office, shared her expertise on this tax credit with Forbes, saying, “The homebuyer credit currently being proposed by President Biden is actually more of an advance. Rather than having to wait until you file your return to see the funds, the funds would be advanced to the homebuyer at closing.”
What This Means for You – Stay Alert and Connected
First things first, this bill looks promising and surely has many benefits that are specifically applicable to the housing market today. Earl Blumenauer, an American Politician, calls the credit an “incentive,” articulating, “as housing prices and demand continue to rise to historic levels, we need to do more to create opportunities for those who’ve been locked out of homeownership.”
It is no secret that one of the most daunting issues for potential homebuyers is the size of the down payment. This bill would provide immediate relief on this matter.
If you meet these requirements, Biden’s first-time homebuyer tax credit could help you advance your home buying journey. In addition, this is not the only thing Biden is proposing to help homebuyers; a $25,000 home buyer grant is also circulating around Congress right now. With some optimistic and favorable measures revolving around these proposals, make sure to continue to connect with us to get the latest updates on this bill and the other potential grants coming our way!
In the meantime, learn about the homebuying options you have available today (including programs with as little as 0% down).
