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The Biden $15k First-Time Homebuyer Tax Credit: Explained
The First-Time Homebuyer Act amends the IRS tax code to grant first-time home buyers up to $15,000 in refundable federal tax credits.
The First-Time Homebuyer Tax Credit is known by several names, which we use interchangeably throughout this review:
- The $15,000 First-Time Homebuyer Tax Credit
- The Biden First-Time Home Buyer Tax Credit
- The First-Time Home Buyer Act
Congress introduced The First-Time Homebuyer Act on April 28, 2021. It makes homeownership more affordable for low- and middle-income Americans. As of today, this bill has yet to become law.
This article explains how the $15,000 First-Time Homebuyer Tax Credit works, who’s eligible, and how the program differs from other first-time home buyer programs.
- → Did The First-Time Homebuyer Act Pass Yet?
- → What is the $15,000 First-Time Homebuyer Tax Credit?
- → How Does the First-Time Homebuyer Act Work?
- → Who Is Eligible For The First-Time Homebuyer Tax Credit?
- → How to Receive Your $15,000 Tax Credit
- → If You Move Within 4 Years, You’ll Pay Some Money Back
- → When Will The $15,000 First-Time Homebuyer Tax Credit Act Pass?
- → Frequently Asked Questions About The $15,000 First-Time Homebuyer Tax Credit and First-Time Homebuyer Act
Did The First-Time Homebuyer Act Pass Yet?
As of September 22, 2023, the First-Time Homebuyer Act has not been enacted. President Biden first announced the $15,000 tax credit on his 2020 campaign trail, and the program became known as the Biden First-Time Home Buyer Tax Credit.
Shortly after the election, Congress introduced other government programs for first-time home buyers and, most recently, read a new first-time buyer tax credit bill into the record called The DASH Act.
In April 2023, President Biden launched his 2024 presidential campaign via YouTube, which echoed the themes from his first campaign – inclusion, fairness, and equality – and pledged to address “unfinished business,” including:
- Ensuring fair economic opportunities for all
- Addressing systemic racism and inequality
- Equitable treatment for historically marginalized communities
Affordable housing straddles each of these themes.
We expect Congress to revive the original bill to coincide with President Biden’s re-election campaign with the anticipated title, “The First-Time Homebuyer Act of 2023.”
What is the $15,000 First-Time Homebuyer Tax Credit?
The First-Time Homebuyer Tax Credit is a $15,000 refundable tax credit for first-time home buyers.
Eligible home buyers must meet the following criteria, according to the bill’s most recent version:
- 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 at least 18 years of age
- Must be purchasing the home from a non-relative
Home buyers can claim their tax credit without submitting additional paperwork. Tax credits are applied to your federal tax bill automatically.
How Does the First-Time Homebuyer Act Work?
The First-Time Homebuyer Tax Credit is a tax refund from the U.S. Treasury, paid to eligible first-time home buyers and cashed in when federal taxes get filed.
The refund is neither a loan like some downpayment assistance programs nor a cash grant like the $25,000 Downpayment Toward Equity Act. According to the bill’s original language, it’s a proper tax credit equal to 10% of your home’s purchase price, not to exceed $15,000 in 2021 inflation-adjusted dollars.
The inflation-adjusted target means the 2023 First-Time Home Buyer Tax Credit approaches $17,000 because 2021 and 2022 inflation rates were seven percent and six-and-one-half percent, respectively. The credit gets more valuable each year.
The first-time home buyer tax credit would approach $22,000 by 2027, assuming a five percent annual inflation rate:
- 2023: Maximum tax credit of $17,850
- 2024: Maximum tax credit of $18,745
- 2025: Maximum tax credit of $19,680
- 2026: Maximum tax credit of $20,665
- 2027: Maximum tax credit of $21,700
When eligible buyers receive the tax credit, it’s subtracted from the federal tax liability, which results in a tax refund for many first-time buyers.
There is no limit to how large your tax refund can be.
Married households who file their taxes separately may claim half of the available credit, and non-married buyers may claim their proportional share of the credit.
Who Is Eligible For The First-Time Homebuyer Tax Credit?
According to the original bill, home buyers must meet five eligibility standards to qualify for the First-Time Homebuyer Act and claim their first-time buyer tax credit.
1. Must be a first-time home buyer
Eligible home buyers may not have owned a home or been a co-signer on a mortgage loan within the last thirty-six months, encompassing primary residences, second homes, and vacation rentals. Buyers who owned a home more than thirty-six months ago and home buyers who own commercial properties through a business remain eligible.
2. Must be using the first-time buyer tax credit for the first time
Eligible home buyers may use their tax credit once only. Suppose you claim your federal tax credit under the First-Time Homebuyer Act in 2023, for example. In that case, you may not claim the credit again.
3. Must earn a modest income based on location and household size
Eligible home buyers must earn an income within 160 percent of the area’s median income. For example, in Columbus, Ohio, where the median income is $60,000, eligible home buyers who file as single-earner must have a household income of less than $96,000 annually.
Households with multiple income earners have higher income limits.
4. 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 at least 18 years of age. This rule prevents adults from buying a home with cash in a child’s name, then claiming the tax credit on the child’s income tax returns.
5. 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. The bill provides no specific guidance regarding purchasing a home from an entity controlled by a relative, such as a trust.
How to Receive Your $15,000 Tax Credit
The First-Time Homebuyer Act bill does not specify how buyers can claim their tax credit.
However, the bill’s language resembles another first-time buyer tax credit program – the First-Time Homebuyer Credit of 2009. That Obama-era program asked home buyers to file a one-page form with their taxes that showed the date and proof of purchase.
The updated version is expected to ask for the same with one notable difference: the Biden First-Time Homebuyer Act was initially written to be retroactive to December 31, 2020, meaning home buyers could file amended returns for prior years’ purchases and receive an immediate Treasury refund.
It needs to be determined whether an updated version of the First-Time Homebuyer Act will also be retroactive. We’ll report on that information here. Consult your tax accountant for details.
If You Move Within 4 Years, You’ll Pay Some Money Back
The First-Time Homebuyer Act builds long-term wealth for low- and middle-income households through real estate. It specifically legislates away from house flippers and real estate investors.
Therefore, buyers who claim the tax credit and change their primary residence or sell their home within four years of purchase will realize an updated tax liability based on how long they held their home.
Assuming a $15,000 tax credit:
- 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 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, 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.
Other exceptions include death, divorce, and certain military transfers.
When Will The $15,000 First-Time Homebuyer Tax Credit Act Pass?
The $15,000 First-Time Home Buyer Tax Credit is among the more likely first-time buyer programs to pass into law because it has precedent.
The program modifies tax code leftover from the 2009 Obama-era $8,000 First-Time Homebuyer Tax Credit, which more than 2.6 million renters used to buy their first home.
The needs of today’s buyers are different compared to the Obama-era program. Still, the market shows similarities.
- Not enough new construction homes available for purchase
- Challenges with home affordability
- Fewer opportunities to build wealth through real estate
In its last election cycle, the Biden Administration pledged to make homes more affordable, increase wages among low-earning households, and reduce wealth gaps due to race. The First-Time Home Buyer Tax Credit meets all three criteria.
We expect the Biden Administration to make its tax credit program available leading up to the 2024 election.
Frequently Asked Questions About The $15,000 First-Time Homebuyer Tax Credit and First-Time Homebuyer Act
If you have a question that 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 other readers have the same question.
Is this program the same as the Biden First-Time Homebuyer Act?
Yes, the First-Time Homebuyer Act 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.
Is the $15,000 Home Buyer Tax Credit available yet?
No, the $15,000 first-time homebuyer tax credit is not yet available. 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. If you meet the program’s eligibility requirements, the IRS credits your tax bill automatically.
If I have to move for work during the first four years, do I have to repay the $15,000 tax credit?
If you move or sell your home within four years of using the program, you must 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 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 reduces by 50%, and the first-time home buyer claims $7,500 on their tax returns.
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.
Is the $15,000 first-time home buyer tax credit available for trailer homes, mobile homes, and manufactured homes?
The first-time buyer program works for any home zoned for residential property, including trailer homes, mobile homes, and manufactured homes.
Is the first-5,000 First-Time Homebuyer Act the same as the $25,000 program I’ve heard about?
No, the $15,000 First-Time Homebuyer Act of 2021 differs 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 qualify for both programs and collect $40,000.
The LIFT Act, introduced in September 2021, also helps first-time buyers pay their homes off quicker with ultra-low mortgage rates.
How do I know if my income is 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. Your income is eligible if your household income is less than or equal to the product.
Is this program the same as the Biden First-Time Homebuyer Tax Credit?
Yes, 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.
Is the Downpayment Toward Equity Act the same as the First-Time Homebuyer Tax Credit?
No, the Downpayment Toward Equity Act differs from the First-Time Homebuyer Tax Credit. The Downpayment Toward Equity Act is a bill that proposes $25,000 cash grants to offset closing costs, taxes, and interest for eligible first-time buyers. The bills could be combined, creating a forty-thousand-dollar incentive for renters to buy their first home.
Are there other tax-related programs for first-time home buyers?
The American Dream Downpayment Act is a program going through Congress that sets up tax-advantaged savings accounts to use towards down payment costs.