During the coronavirus pandemic, there was a surge in first-time homebuying. People were tired of living in small apartments in cramped cities and realized that they wanted more space and a place to call their own.
Soon after, the First-Time Homebuyer Act of 2021 was introduced. This bill adjusts the American tax code and gives up to $15,000 in governmental tax credits to people buying houses for the very first time.
This program applies to all houses bought since the start of 2021. If you’re interested in learning how to qualify for first-time homebuyer tax credit then keep on reading and we will take you through everything that you will want to know!
What Does The First-Time Home Buyer Act of 2021 Do?
This bill helps middle- and low-income people more easily advance into homeownership. This is important because it allows households to build generational wealth.
The longer a person has a house, the more wealth their family can accumulate. However, it is hard for people with less money to buy and own a home and build their wealth.
This bill is separate from the Downpayment Toward Equity Act, which provides up to $25,000 cash to eligible homebuyers.
Combined, these two bills would create thousands of dollars in tax incentives for first-time homebuyers.
Who Is Eligible For The First-Time Homebuyer Act of 2021?
There are certain criteria that you must first meet in order to be eligible for these credits. Let’s look at them below.
Must Be a First-Time Homebuyer
In order to be eligible, this must be your first time buying a home. That means that you couldn’t have owned a home in the past. You also couldn’t have co-signed on a mortgage loan within the past two years.
This includes vacation rentals, second homes, and primary residences.
Must be Using the First-Time Buyer Tax Credit for the First Time
Eligible homebuyers can only use the tax credit one time. If you use the tax credit to buy a home, you won’t be able to use it again.
Must Earn a Modest Income Based on Household Size and Location
In order to be considered an eligible homebuyer, you can’t earn more than sixty percent above the median income in the area where you live. The more income earners you have in your household, the more money you are allowed to make and still be eligible for the credits.
Must Be 18 Years of Age or Older
By the time you buy the house, you need to be at least eighteen years old. Or, you need to be married to someone who is at least eighteen years old.
This rule stops adults from buying homes in their children’s names. Otherwise, they could claim a tax credit on their children’s income tax returns.
Must Be Buying the House from a Non-Relative
In order to be eligible for these credits, you can’t buy a home from a relative. This includes your grandparents, grandchildren, cousin, uncle, aunt, child, parent, or spouse.
How Does The $15,000 First-Time Home Buyer Tax Credit Work?
This Act is a federal tax credit meant to help first-time homebuyers. This is not a loan and you don’t need to repay it. It is also not a cash grant like the Downpayment Toward Equity Act.
The tax credit is equal to ten percent of the house’s buying price but can’t be more than $15,000.
When you get a tax credit, it is directly applied to your federal tax bill.
If you are married and file your taxes separately, then you can claim half of the available credit. A non-married buyer can claim their proportional share of the credit.
Of course, if you don’t qualify for this credit, there are other loans that you can take advantage of when looking for home loans first time buyer.
How to Get Your First-Time Homebuyer Tax Credit
This program requires an extra IRS tax form that you need to include with your standard federal tax filing. You should speak with your tax accountant to get more details and make sure that you accurately file all of the proper paperwork.
If You Move Within 4 Years, You Will Need To Pay Some of the Money Back
The point of this program is to helo middle- and low-income people. It strives to help them build generational wealth through the power of homeownership. The point of this program is not to help people become real estate investors or to flip their homes.
This means that people who use this credit and then change their primary residence within four years of buying the house will realize the tax liability. If you move within the first year, you will need to pay back all of the money you got from the program.
However, if you sell and your real estate gains are less than the tax liability, you will only need to pay the real estate gains. There are also exceptions for military transfers, divorces, and deaths.
The Importance of Knowing How to Qualify for First-Time Homebuyer Tax Credit
Hopefully, after reading the above article, you now understand how to qualify for the first-time homebuyer tax credit. As we can see, there are certain criteria that must be met in order to receive these credits. If you think that you could qualify for this program, it’s important that you speak with your accountant and see how you can apply. Don’t forget to check out the rest of our site for more helpful articles today