A Guide to the $15,000 First-Time Homebuyer Act of 2021
The $15,000 First-Time Homebuyer Act
April 28, 2021, U.S. lawmakers introduced the First-Time Homebuyer Act of 2021. The bill revises the IRS tax code to grant first-time home buyers up to $15,000 in federal tax credits.
The program applies to all homes purchased beginning January 1, 2021. There is no end date specified, and the $15,000 tax credit could become permanent.
According to the bill, home buyers who meet the following criteria receive the credit:
- Must be a first-time home buyer
- Must not have not owned a home in the last 36 months
- Must not exceed income limitations for the area
- Must be purchasing a primary residence - no second homes or rental properties
- Must be at least 18 years of age, or married to a person who is 18 years of age
- Must be purchasing the home from a non-relative
If passed into law, eligible first-time home buyers would automatically receive their tax credit, with no action needed beyond the filing of a tax form. And, for homeowners whose tax bill is less than $15,000, the extra amount would be paid via direct deposit.
As of today, June 14, 2021, the First-Time Homebuyer Act of 2021 is still a bill. It's not yet law.
What Does The First-Time Home Buyer Act of 2021 Do?
The First-Time Homebuyer Act of 2021 helps low- and middle-income Americans get into homeownership.
Homeownership matters because it builds generational wealth - the longer a person owns a home, the more wealth their household accumulates. But, a homeownership gap exists between white communities and communities of color so the First-Time Homebuyer Act of 2021 aims reduces that gap.
The bill introduces wealth-building opportunities for historically marginalized communities, and fulfills one of President Biden's key campaign promises - to make homeownership more accessible to the millions of renters who seek it for themselves and their families.
The First-Time Homebuyer Act is different from another housing-related bill, the Downpayment Toward Equity Act, which was also introduced this year. The latter proposes to pay $25,000 cash to eligible home buyers to offset closing costs, taxes, and interest.
Together, the two bills create a forty-thousand dollar incentive for renters who want to buy their first home.
Who Is Eligible For The First-Time Homebuyer Act of 2021?
The First-Time Homebuyer Act of 2021 is a bill, and the terms of a bill can change before passage into law.
As of today, eligible home buyers meet all of the following requirements:
Must be a first-time home buyer
Eligible home buyers may not have owned a home or been co-signed on a mortgage loan within the last thirty-six months. This includes primary residences, second homes, and vacation rentals.
Must be using the first-time buyer tax credit for the first time
Eligible home buyers may use the tax credit only once. If you use the tax credit to buy a home in 2021, for example, you may not use it again 2026.
Must earn a modest income based on location and household size
Eligible home buyers must earn an income that's no more than 60 percent above the median income for the area. For example, in Columbus, Ohio where the median income is $60,000, home buyers who file their taxes as a single-earner may not have a household income of more than $96,000 per year. Higher income levels are permitted for households with multiple income earners, including married and non-married joint-filers.
Must be 18 years of age or older
Eligible home buyers must be 18 years of age on the date of purchase, or married to a person who is 18 years of age. This rule prevents adults from buying a home with cash in the name of a child, then claiming the tax credit on the child's income tax returns.
Must be purchasing the home from a non-relative
Eligible home buyers may not purchase their home from a relative, including a spouse, parent, child, aunt, uncle, cousin, or grandparent. Note that the bill provides no specific guidance regarding the purchase of a home from an entity controlled by a relative, such as a trust.
How Does The $15,000 First-Time Home Buyer Tax Credit Work?
The First-Time Homebuyer Act of 2021 is a federal tax credit for first-time home buyers. It's not a loan to be repaid, and it's not a cash grant like the Downpayment Toward Equity Act.
The tax credit is equal to 10% of your home's purchase price and may not exceed $15,000 in 2021 inflation-adjusted dollars.
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
When you receive a tax credit, it's applied to your federal tax bill directly.
Married households who file their taxes separately may claim half of the available credit, non-married buyers may claim their proportional share of the credit. At no time may the first-time home buyer tax credit exceed the maximum allowable amount by law.
How to receive your first-time home buyer tax credit
The First-Time Homebuyer Act of 2021 text does not specify how to claim your tax credit.
However, the bill's language is similar to another first-time buyer tax credit program - the First-Time Homebuyer Credit of 2009. That program required an additional IRS form to accompany the federal tax filing, and it's expected that the 2021 version of the tax credit will do the same.
However, there's one notable difference: the First-Time Homebuyer Act of 2021 is retroactive to December 31, 2020, which means that home buyers can file an amended return for the prior year's filing at any time, and receive an immediate cash payout from the U.S. Treasury.
Consult your tax accountant for details.
If You Move Within 4 Years, You'll Have To Pay Some Money Back
The First-Time Homebuyer Act of 2021 is designed for low- and middle-income households, and meant to build long-term wealth through real estate. It isn't geared toward house-flippers or real estate investors.
Therefore, buyers who use the home buyer tax credit and change their primary residence or sell within four years of purchase will realize a tax liability based on how long they held their home.
- Sell or move within Year 1: Repay 100% in taxes / $15,000
- Sell or move within Year 2: Repay 75% in taxes / $11,250
- Sell or move within Year 3: Repay 50% in taxes / $7,500
- Sell or move within Year 4: Repay 25% in taxes / $3,750
There are exceptions to the repayment rule.
One exception states that home buyers who sell their home within four years to a non-relative, and whose real estate gains are less than their tax liability, must only pay their real estate gains.
For example, if you received a $15,000 credit when you bought your home, and sold your home to somebody related to you in the first 12 months, and made five thousand dollars on the sale of your home, your tax repayment amount would be $5,000.
There are other exceptions, too, including exceptions for death, divorce, and certain military transfers.
Questions Other Homebuyer Customers Ask About The $15,000 First-Time Homebuyer Act of 2021
Here are questions other Homebuyer readers ask about the First-Time Homebuyer Act.
If you have a question and it doesn't appear here, use the chat box and we'll answer you live. We'll then add your question to this FAQ because if you're asking a question, we know that other readers have the same question, too.
Is the $15,000 First-Time Homebuyer Act the same thing as the $25,000 program I've heard about?
No, the $15,000 First-Time Homebuyer Act is different from the $25,000 program. The $25,000 program for first-time home buyers is the Downpayment Toward Equity Act of 2021. Home buyers can potentially qualify for both programs and collect $40,000.
Is the $15,000 Home Buyer Credit available yet?
No, the $15,000 first-time homebuyer tax credit is unavailable as of today. The program is currently a congressional bill. It may pass into law within a few weeks, a few months, or possibly never. We expect the bill to pass into law in some form before the end of the year. Homebuyer publishes a special newsletter on the topic. Register below.
How do I apply for the $15,000 Home Buyer Grant?
Eligible first-time home buyers aren't required to apply for the $15,000 first-time home buyer 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.
How do I know if my income it too high for the First-Time Homebuyer Act?
Use this chart to find the median income for an area, then multiply that number by 1.6. If your household income is less than or equal to the product, your income is eligible.
If I have to move for work during the first four years, do I have to repay the $15,000 tax credit?
Yes, if you move or sell your home within four years using the program, you're required to pay back at least some of your tax credit. There are exceptions for death, and military transfers.
If I'm a first-time home buyer but my fiancee is not a first-time home buyer, can we claim the $15,000 first-time home buyer tax credit ?
Yes, you can claim the first-time home buyer tax credit if you purchase a home with a non-relative and only one of you is a first-time buyer. In this example, the credit would be reduced by 50% and the first-time home buyer could claim $7,500 on its tax returns.
Is this program the same as the Biden First-Time Homebuyer Tax Credit?
The First-Time Homebuyer Act of 2021 is known by several names, including the Biden First-Time Homebuyer Tax Credit, the Biden Homebuyer Credit, and the $15,000 Homebuyer Tax Credit. They're all the same thing.
Can I use the First-Time Homebuyer Act to buy a multi-unit home, and rent out the other units?
Yes, you can use your first-time home buyer tax credit to purchase a 2-unit, 3-unit, or 4-unit home so long as one of the units is your primary residence.
When I buy a home and use the $15,000 first-time home buyer tax credit, what is the official date of the credit - on the day I sign the contract for the home or on the day of closing?
When you buy a home and claim the $15,000 first-time home buyer tax credit, the tax credit's effective date is the date of closing.
When I use the $15,000 first-time home buyer tax credit to buy new construction, what is the official date of the credit - on the day I sign the contract for the home or on the day of closing?
When you claim the $15,000 first-time home buyer tax credit for a newly-built home, the tax credit's effective date is the date you take residence.