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Buying a home is a big investment that takes a lot of thoughtful financial planning. Luckily there are several financing options, some that even...
Agostina Tizzano
:
October 25, 2022
5 min read
Eligibility for buying a house in America is more challenging to get than ever, with rising interest rates and home prices across the board.
No matter which state you live in, it can feel impossible to scrape together enough cash to make a reasonable down payment and secure the home of your dreams as a first-time buyer.
But that might change with the potential passing of the First Time Homebuyer Tax Credit. This 2021 refundable tax credit is still being debated in the US House of Representatives, but it could pass soon.
Let’s break down how you can apply and qualify for the First Time Homebuyer Tax Credit, should it become available as a tool for your homeownership journey.
The First Time Homebuyer Act of 2021 was first introduced in April of its titular year as a bill to the US House of Representatives. Under the terms of this Act, it would bring back a tax credit first implemented in 2008 that lasted until 2010.
The previous act did essentially the same thing as the proposed First Time Homebuyer Tax Credit: provide a generous tax credit to help first-time homeowners buy properties for the first time.
Under the proposed federal tax credit’s terms, eligible or qualifying homebuyers could potentially receive a tax credit of:
Like its predecessor, the purpose of the First Time Homebuyer Tax Credit is to help low or middle-income Americans purchase their first homes.
In this way, it might help communities build generational wealth and help alleviate the financial difficulties associated with the current housing market.
However, the First Time Homebuyer Act of 2021 has not passed in the House of Representatives or the Senate.
Because of this, Americans cannot yet take advantage of the First Time Homebuyer Tax Credit in any capacity (though there is significant legislative momentum behind the Act, signifying that it may pass shortly).
The act is not meant to help taxpayers find lenders, nor does it make homes more initially affordable or reduce closing costs. It can reduce federal income tax liability for a given tax year.
Under the current terms of the Act, only certain Americans would qualify for this mortgage credit certificate (MCC). These Americans include:
Finally, Americans may only qualify for the First Time Homebuyer Tax Credit if they do not purchase the property from a direct relative, such as a spouse, parent, or child.
If passed, the First Time Homebuyer Tax Credit for 2021 or 2022 would work like the 2008 predecessor. In a nutshell, eligible homebuyers could receive a tax credit for up to $15,000 or 10% of their home’s purchase price for the current year’s tax return.
Here’s an example of how this might work in action:
Whether or not you owe the federal government any money on your taxes, you would receive the $15,000 as part of your federal refund or have some or all of that $15,000 amount deducted from the repayment that you owed to the federal and local government.
It’s unknown at this time, but it’s unlikely. The standard deduction is the most common deduction taken by Americans, and it’s usually upwards of $12,000 for an individual.
If the First Time Homebuyer Tax Credit were to overwrite or prevent one from taking the standard deduction, it would defeat the purpose of making homeownership more available for low or middle-income Americans.
There is no way to apply for the First Time Homebuyer Tax Credit because the First Time Homebuyer Act of 21 has not passed in either the House of Representatives or the Senate.
However, the First Time Homebuyer Tax Credit may require you to apply for the credit before filing your tax return (to ensure that you qualify and aren’t a house flipper or buying a second home).
Should this be the case, you may need to fill out a form and attach it to your tax return for the qualifying year. You’ll likely need to provide information such as:
Note that these requirements may change if and when the Act finally passes. Be sure to double-check the requirements before applying for the Tax Credit.
Alternatively, the federal government may allow you to claim the First Time Homebuyer Tax Credit without applying for it beforehand.
In this case, you may be required to fill out an extra paper or form and attach it to your tax return. Then you could simply claim the tax credit the same way as the standard deduction (or other tax deductions when filling out your taxes).
If this is the case, the government will likely do a background check or research your home purchase to ensure you qualify for the credit.
If any amount applies to you, your refund will arrive with the rest of your federally mandated refund amount, usually several weeks or months after filing your taxes.
The First Time Homebuyer Tax Credit is straightforward and intended only for specific individuals. It’s not intended for house flippers, those who have already purchased a home, or Americans with enough money to reasonably buy a house.
It’s also important to remember that you can take other tax deductions if you are a first-time homebuyer. Here are just a couple of examples:
It may be wiser to claim the standard deduction in conjunction with the First Time Homebuyer Tax Credit, depending on the overall price of each of these deductions. Time will tell how the First Time Homebuyer Tax Credit affects other first-time homebuyer tax deductions.
Ultimately, the First Time Homebuyer Tax Credit is an excellent tool to maximize your home-buying options. It may even allow you to buy a home for the first time where you couldn't otherwise.
Hopefully, the First Time Homebuyer Tax Credit will pass shortly, allowing millions of Americans to take advantage of it.
Until then, you have other options if you want to pursue homeownership quickly. Vaster’s knowledgeable loan officers can help you find the right property for your needs and secure financing for your ideal properties.
Contact us today to explore the best mortgage options available to you.
Sources:
Mortgage Rates Forecast For 2022 | Forbes
H.R.2863 - 117th Congress (2021-2022): First-Time Homebuyer Act of 2021 | Congress
Topic No. 551 Standard Deduction | Internal Revenue Service | IRS
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