Becoming a homeowner has many perks that come along with the house itself. For first-time homebuyers, tax credits may be available to help incentivize you to buy a home.
Here is everything you need to know about the First-Time Homebuyer Tax Credit in 2022.
What Is The First-Time Homebuyer Tax Credit?
First-time homebuyer tax credits are a government program intended to make homeownership more affordable. Affordable homeownership encourages you to purchase your first home.
The program works by the government incentivizing you to make a certain financial decision. That decision – in this case, buying your first home – will reduce the amount of income tax you will pay.
For example: You owe $5,000 in federal income taxes, but receive a $2,000 tax credit. This reduces the amount you will pay to only $3,000.
What Is The First-Time Homebuyer Act of 2021?
The First-Time Homebuyer Act of 2021 is a bill introduced into Congress in April 2021. It is very similar to the previous tax credit program that was introduced in the midst of the 2008 mortgage meltdown.
If passed into law, the First-Time Homebuyer Act will assist qualified borrowers with becoming first-time homebuyers by providing up to 10% of the home’s purchase price or $15,000.
As of August 2022, the First-Time Homebuyer Act of 2021 has not yet become an active law.
How Would It Work?
Eligible first-time homebuyers could receive up to 10% of their home’s purchase price or up to a maximum of a $15,000 tax credit. This would be automatically applied to your federal tax bill to reduce the amount of income tax you owe.
If you own your home for at least 4 years, you will not need to repay the tax credit. If you sell your home or move within the first 4 years, you will pay back a portion of the tax credit based on the amount of time that has passed.
There are only a few exceptions to the repayment guidelines:
- Military transfers
- Real Estate gains are less than your tax liability
Who Qualifies For First-Time Homebuyer Tax Credit?
A first-time homebuyer is defined as someone who has not owned a home in the past 3 years. This includes any loans you have co-signed on or have any ownership interest in.
However, there are some additional requirements you need to meet in order to qualify for the First-Time Homebuyer Act of 2021.
First-Time Homebuyer Act of 2021 Additional Requirements Include:
- You must not be purchasing a home from a relative: A relative is considered anyone in your direct familial tree. This includes a parent, spouse, child, sibling, aunt, uncle, cousin, or grandparent.
- You must not have previously used the first-time homebuyer tax credit: If you used the 2008 First-Time Homebuyer Tax Credit, you still qualify. However, you will not be eligible for tax credit again until 2026 if you use the First-Time Homebuyer Tax Credit Act of 2021.
- Your income must not exceed 60% of the median income in your area: Note the income requirements are higher for some individuals including those who are joint filers and/or those with multiple streams of income.
- You must be purchasing a primary residence: A secondary residence property is not qualified to receive a tax credit.
- You are at least 18 years of age: To qualify, you must be at least 18 years of age on the purchase date of the property. If you are not at least 18 years of age, you must be married to someone who is.
Keep in mind that you must be qualified by your lender as well to receive a mortgage loan before purchasing your home.
Are Other Tax Credits Available?
While the First-Time Homebuyer Act of 2021 has not yet become law, current first-time homebuyers have other options to help lower their home purchasing expense:
- Tax Deductions: You can deduct mortgage interest, property taxes, and loan origination fees when filing taxes. While tax credits reduce the amount of taxes you owe, tax deductions lower your overall taxable income.
- Energy Credits: There are several tax credits available for homeowners who buy energy-efficient upgrades to their homes. This includes solar panels, HVAC, etc.
- Mortgage Credit Certificates (MCCs): Depending on the state you live in, mortgage credit certificates may be available to help lower your tax bill. The credit is usually capped at about $2,000.
The Bottom Line
If passed into law, the First-Time Homebuyer Act of 2021 will help many Americans become homeowners.
But you don’t have to wait until the Act passes to become a homeowner.
There are other options to lower the cost of purchasing your first home including tax deductions, energy credits, and MCCs.
Are you interested in becoming a first-time homebuyer and want to learn more about tax credit options? Talking with one of our Client Advisors is the first step.