Video Transcript
The Biden First-Time Home Buyer Tax Credit Act – $15,000 paid to first-time buyers – it’s been revived in the House and the Senate – and revamped! – made even better – you’re going to want to hear this. Here we go.
[Make your dogs bark] I’m Dan with Homebuyer.com.
We are the mortgage company for first time home buyers. Hit the subscribe button – this channel’s full of good info. Including this – about the First-Time Homebuyer Tax Credit Act.
It’s a bill that goes by a lot of names, actually. The First-Time Home Buyer Tax Credit – the Biden First-Time Buyer Act- The $15,000 First-Time Home Buyer Tax Credit – you may have heard it by any of these names – The bill’s actual name – it’s The First-Time Homebuyer Tax Credit Act of 2024. It has the “2024” on it because this isn’t the first version of the bill – the first version was proposed in the last Congress and – like most potential laws – it died in committee, without a vote.
That’s normal. But now – the bill is revived – and rewritten – with new rules that make it even more favorable for buyers who use it. We’ll start with the details of how the tax credit works – we’ll move into who exactly is eligible to collect the federal tax credit – and then we’ll get the bill passing into law.
So here’s how the tax credit works – and in the 2024 version of the bill – it’s waaaay more favorable than the original to first-time buyers. In the updated version of the bill – home buyers get up to $15,000 – paid to them as cash – like before – but in the new version – buyers can choose when to receive it – with two options. One – by using the bill’s retroactive clause which lets buyers assign the purchase to the preceding year – and filing an amended tax return with the IRS to get the cash via direct deposit.
All it takes for that is to show proof of purchase with a settlement statement and make a routine filing with the IRS that an accountant or CPA can handle pretty easily. That’s the first way to get your tax credit. The second way – is to receive it – at closing – as cash – payable to you – to be used for anything in conjunction with your purchase.
You can use it for a down payment – you can use it for closing costs – for discount points to get a lower rate – for real estate taxes – anything related to the purchase. And this is the big difference from the last bill – that died in Congress – because with the new bill – first-time buyers get immediate financial benefit. Your tax credit can be your down payment.
We have more details on how this can work and how you can use the First-Time Home Buyer Tax Credit Act to buy a home with no money out of pocket on the website. There’s an article with details. It’s pinned as the top comment below.
And as for who’s eligible – it’s a wide net and it’s straightforward. First – you have to be a first-time buyer – duh – but the program uses the government’s definition of first-time buyer which is any person who hasn’t owned the place they’ve lived in the last three years. This means you can be a first-time buyer – a second time – if you owned a home in the past and have rented for the last three years – or if you own a home somewhere but don’t live there, you live in a rented home somewhere else – again for the last three years.
Or, also – if you’re recently divorced or widowed – you may qualify as a first-time buyer by the government’s definition. So, that’s the first requirement. The second – is that your income must be no more than 150% of your area’s median household income for households similar in size – of 2 people – 4 people – etc.
That means – if where you live – and for your household size – if the median household income is $100,000 – your household must earn no more than 150% of that – $150,000 in this example – to get the full credit. If you earn more than 150 percent of the area median income, you can still get the credit – just in a smaller amount – the credit phases out as your household income rises – it’s a formula that’s pretty complex in the bill’s language – you don’t have to read it – we did the math – for every $1,000 your income is over that 150 percent level – the size of your credit drops by 750 bucks – until you’re no longer eligible to claim it – or rather – your claim is zero. And that happens at $20,000 over 150% area median income which – in most areas would put you in the top 8-12% of income earners.
So if that’s not you – congratulations – you meet the second requirement to collect the first-time home buyer credit. The third requirement is similar to the second – it’s based on the relative value of home to other homes in the area. To claim the credit – the home you’re buying must sell for no more than 10% above the area’s median home price.
If the median home price is your area is $250,000 – that is – half the homes sell for more than $250,000 – half the homes sell for less – to claim your first-time buyer credit – your new home must be in contract for $275,000 or less – that’s 10 percent above the median sale price for the area. If you buy for more than that – again – you may be eligible for a reduced tax credit through the program – for every additional 1 percent in the purchase price – over the area median purchase price – the credit you receives reduces – $1,000 – until at 15% over – the credit is zero. Now – a few other qualifications – which don’t involve math.
If you’re buying the home with another person – you both must qualify as a first-time home buyer. If only one of you meets the definition, that’s not enough. Both must qualify.
Second – you have to make the home your primary residence. This is for first-time buyers – not for investors – not for corporations. Third – at least one person buying the home must be 18 years of age.
Fourth – the home must be purchased – it can’t be inherited or a gift – and on that theme – the home must be purchased as an arms-length transaction – if you buy your home from a relative – a sibling – a parent – a grandparent – you cannot claim a credit. Fifth – cash buyers are ineligible – the home must be financed using one of four government-backed mortgage types – a conventional loan – an FHA loan – a VA loan for veterans and active duty military – or a USDA loan. You can use any mortgage program – a 3 percent down – a no percent down – heck you can use your $15,000 tax credit FOR your 3 percent down – whatever you want – but you can’t pay cash.
You must use a mortgage. Oh – and there’s a claim-back feature in the bill – to minimize abuse – if you get your credit – for buying your first house – then move out – within four years of moving in – the IRS will bill you for the unused portion of your credit. Move before the first year ends – you’ll repay the credit in full – up to $15,000.
Move out before the second year – 75 percent. Before the third – 50 percent and so on until 4 years pass and the recapture period ends. There are some exceptions here like for job transfers, deployments, for family events – an accountant can help you navigate that if the situation comes up.
Now – a few other things. First – the bill is not yet passed. It’s still just a bill.
Which means – it’s not yet available – and you can’t yet use it. There are other programs you can use as a first-time buyer – you can find out more on our site – but this bill – the $15,000 First-Time Home Buyer Tax Credit – is not yet live. Also – we can’t necessarily call it the $15,000 First-Time Buyer Tax Credit – because the bill is written to raise the credit amount to keep up with economic growth – tied to inflation – so every year – the maximum credit amount – that buyers can claim – goes up – at the rate of inflation.
If inflation is 3 percent this year, next year’s credit is – $15,500. The year after that, it’s $16,000. And so on.
And lastly – remember – this is a bicameral bill – it’s live in the House and also in the Senate. It has co-sponsors and it’s one of many first-time buyer bills that legislators are trying to get passed. Will it pass?
It could. The First-Time Homebuyer Tax Credit Act is based on language from the 2009 first-time buyer tax credit that was wildly successful – helped more than 2.6 million people buy homes – and it’s logistically a fairly basic program. It gives cash-back to lower and middle class Americans to help level the playing field between them and corporate buyers – and it’s in line with the current administration’s policies to reduce barriers to homeownership, build stronger communities, and to create long-term, generational wealth that lifts everyone up.
Congress passed the CHIPS and Science Act, The Infrastructure and Job Act, and The PACT Act – programs with similar goals of supporting the U.S. economy from the groud up – lifting low- and middle-income Americans – creating more level playing field – which is why the First-Time Homebuyer Tax Credit Act may be next to pass. And when it does, you can be the first to find out and get a head-start on all your home-buying competition.
Find the subscribe button, click it and hit the bell – and you’ll always know first.
[Disclaimer] Remember that any time of day or night – or weekends – you can get your mortgage approved actually – in just 3 online on our website – find out how much home you can buy – see today’s mortgage rates – it’s all there – I’m Dan with Homebuyer.com – the mortgage company for first-time home buyers. Happy homebuying.
