Today’s 8 questions are all about the potential $15,000 Federal tax credit in the First Time Homebuyer Act.
As a licensed real estate agent, I am constantly looking for ways to help my clients maximize their funds to sell or purchase a home, and from what I have been reading this tax credit could be a great addition to their toolbox. To be eligible for this tax credit you will have to meet a few things:
- Your Income Level
- The Home Price
So, Let’s get into the 8 Questions:
Question 1: What is a home buyer tax credit?
Many of us have heard about or even used tax deductions. A tax deduction lowers your taxable income by subtracting expenses from your total income. This differs from the proposed credit in that a tax credit lowers your actual tax bill.
Question 2: Can you break it down for the students in the back?
Confused?
Here is some quick math.
Say you owe them $20,000 in federal income taxes this year, and you decide to claim the First-time buyer tax credit in full. Meaning you claim the full $15,000. You would effectively own $5000 in federal taxes this year.
As a bonus, the homebuyer tax credit is also refundable! So in essence, if you owed $6,000 in federal taxes and again claimed the full $15,000 federal tax credit, you would be able to get the difference of $9,000 as a federal tax refund!
One quick caveat, the credit must be applied in the same year you buy the house.
Question 3: What is the purpose of this credit?
The goal of the first-time buyer’s credit, if it passes, is to lower the barrier to entry for first-time homebuyers from all backgrounds to buy a home. You would be able to claim a one-time tax credit of 10% of your home’s purchase price, up to $15,000. These credits would be retroactive to any purchase made after December 31, 2020.
Question 4: You mentioned all backgrounds, Is that true?
The homeownership rate of Black and LatinX communities is 20% lower than that of White Americans and 10% lower than that of Asian Americans and Pacific Islanders. This homeownership gap has long been disproportionate in the communities of color, this credit creates opportunities for these communities to build wealth through homeownership.
Question 5: What are the known requirements?
Buyers :
- Cannot have owned a home in the last 3 years.
- Must have a Modified Adjusted Gross Income that is 160% or less than the area’s median income.
- Must be purchasing a home that has a purchase price that is 110% or less than the local median.
Confused? Here is some more quick math
In New Haven Connecticut, the median income is $42,222 based on Census income data between 2015 and 2019. To qualify for the credit, in New Haven, your income would have to be $67,555 or less, and the house would have to be $218,900 or lower (Area Median Purchase Price = $199,000).
Question 6: This sounds great, What’s the Catch?
As of right now, there are no catches, gotchas, or hoops to jump through. You do not have to repay the funds, like other first-time buyer programs, however:
- You must live in the home as your primary residence for at least 4 years
- If you sell the home within that time frame you will have to pay back a portion of the credit.
Question 7: How would I claim the credit?
Since this is a tax credit, you would claim the credit once you file your taxes the year following the purchase of your home. Your licensed tax preparer should be able to walk you through what is needed to claim this credit.
Question 8: I am ready to buy! How do I start?
I recently did an 8 Questions series with a team of Mortgage Bankers about the preapproval process. I will link that video here. Besides that, the first step is to contact me or another trusted real estate professional to walk you through the buying process, and sure, get preapproved so you know your buying power.
Contact us with any real estate questions.
