A new tax credit of up to $15,000 for first-time home buyers is being proposed by the Biden Administration.
A tax credit, unlike a deduction, decreases the total tax bill rather than lowering your taxable income. For example, if you owed $20,000 in income taxes and received the full first-time buyer tax credit, you'd just owe $5,000 in federal taxes ($20,000 minus $15,000) for the year.
The proposed credit’s greatest advantage is that it’s refundable, which means it will boost your annual tax refund. If you owed $8,000 in taxes and received the $15,000 deduction, you'd be liable for a $7,000 rebate after filing your returns.
Both first-time homebuyers would be eligible for a one-time tax credit worth 10% of their home's buying price, up to $15,000, if the bill passes. According to the bill, homes purchased after Dec. 31, 2020, may be eligible.
The bill’s supporters claim it’s an attempt to lower barriers to homeownership, especially in light of increasing home prices, which are now up a whopping 13% year over year.
The previous homeownership status and household income will determine eligibility for the first-time homebuyer tax credit.
Buyers couldn't have bought a house in the preceding three years, and their modified average gross income had to be less than 160 percent of the area's median. In addition, the home's selling price should be less than or equivalent to 110 percent of the local median.
The tax credit funds would not have to be repaid (as with previous versions of the first-time buyer credit), but buyers would have to remain in the house for at least four years. Selling the house in that period would entail repaying some of the credit.
Full approval by Congress is still needed before the First-Time Homebuyer Act is enacted and available to homebuyers.
Contact us today, If you have questions concerning this proposed tax-credit program!
Note: This is for informational purposes only and should not be construed as tax advice. Always consult a tax advisor regarding your specific tax situation.