Who Qualifies for Biden's $15,000 First-Time Homebuyer Tax Credit?
The $15,000 tax credit for first-time homebuyers is now one step closer to becoming a reality. It’s no longer a draft, it’s now a bill known as the first-time home buyer act of 2021!
But how does it work and who can qualify? By the way, if you bought a house after Dec 31st, 2020 – you might qualify too!
According to US Congressman Earl Blumenauer’s website, this first-time homebuyer act will create a refundable tax credit of up to 10 percent of the purchase price – or $15,000 – for the purchase of a home.
A really cool detail of this bill is taxpayers may elect to treat the purchase of their home as occurring in the prior taxable year to receive the credit sooner.
So what this means, is if this bill is enacted, you could buy a home in 2021 and claim the tax credit as though you purchased a home in 2020 to get the tax credit sooner – provided you’ve completed your 2020 taxes of course.
Let’s talk about a few of the key requirements to qualify to get the full 15 thousand dollar credit from the actual proposed bill.
The full first-time home buyer act of 2021 bill is 14 pages long. Below I explain the key provisions that popped out the most after reading the bill. If you prefer to watch my take, here's the video from my YouTube channel. Please subscribe. Thank you.
- The maximum refundable tax credit is up to $15,000. As the bill is currently written, if you're married filing separately, then the credit is $7,500 for each spouse applying for a home loan not to exceed the maximum tax credit of $15,000. If you're not married and buying a primary home yourself or with someone else, the maximum tax credit cannot exceed $15,000.
- A buyer must have an income at or below 160% of their area median income (AMI). To find out what the "Area Median Income" (AMI) is in your areas, use the Fannie Mae AMI Tool here. For instance, as of writing this post, the current area median income in Las Vegas, NV is $70,800. Since a buyer can have up to 160% of their area median income to receive the tax credit, we can easily calculate this amount by taking $70,800 * 1.6 = $113,280 as the maximum qualifying gross income for the Biden first-time homebuyer tax credit in the Las Vegas, NV area.
- The home prices must be at or below 110% of the area's median purchase price of a home. Using the current Las Vegas housing market statistics below, we can see the current median purchase price of a home is currently $363,000. Just like the AMI math above, this is pretty easy to calculate too by taking $363,000 * 1.1 = $399,300 as the current maximum purchase price allowed for this first-time homebuyer tax credit.
- You must be at least 18 years old at the time of purchase.
- You must be a first-time homebuyer. For the purpose of the first-time homebuyer act of 2021, a first-time homebuyer is defined as someone who has not owned or purchased a home in the prior 3 years and has not had any ownership interest in any residence during the past 3 years including your spouse if you're married.
- The first-time homebuyer tax credit is only for a primary residence. This does include any residence which is constructed by anyone building a home and is effective on the date when you move in and occupy the home as a primary residence.
- Exceptions. This is a biggie! To get the tax credit a buyer must provide their settlement statement from closing on their primary residence to their tax-preparer when they file taxes. If a buyer does not provide the settlement statement when filing their taxes they may not get the first-time buyer tax credit. A best practice here is to keep all of your home closing documents in a safe area and put your settlement statement on top.
- There is a recapture period of 4 years. This means if you move out of the residence or if you sell your house after receiving the first-time homebuyer tax credit, you will need to pay back a portion of the tax credit. An easy way to think about this is to consider 25% of the tax credit is forgiven for each year you live in your new home. For example, if you live there for 3 years, then decide to sell your home then you'll need to pay back 25% of the tax credit amount you received. If possible, just live in the house for 4 years and all is forgiven!
- Is the tax credit retroactive? If you bought a home on or after December 31st, 2020 you could be eligible for the first-time homebuyer tax credit act aka Joe Biden tax credit.
- It's important to remember... This bill has not yet been approved.
So you might be wondering how does a bill bet approved? The US House of Representatives will vote on the bill and if the majority of the votes are in favor, then the bill will go to the US Senate to be debated and voted upon. If the Senate majority votes favorably and passes the bill then it will move to President’s desk to be signed into law. President Biden has already said he will sign this bill when it gets to his desk.
Hopefully, this post and the video above have given you a keen insight into what's shaping up in the first-time homebuyer act of 2021. If you're ready to take your home buying savvy to the next level, download the free home buying process infographic below.
Thank you so much for reading this post! I'm sending you positive vibes everything goes your way! - Andrew Finney
Disclaimer: At the time of writing, Andrew Finney, S.0173260, is a real estate salesperson with King Realty Group (KRG) in Las Vegas, NV. Andrew's videos and blog posts are his own and do not necessarily represent the views and/ or opinions of KRG.