$ 15,000 tax credit included in First Time Buyers Act
President Joe Biden touted a potential first-time buyer loan on the campaign, and now it appears that Congress has achieved it.
On Monday, Rep. Earl Blumenauer (D-OR) and Rep. Jimmy Panetta (D-CA) announced their support for a new bill known as the First-Time Homebuyer Act. In its current form, the invoice would offer a first-time buyer tax credit of up to $ 15,000.
Eligibility would be based on income level, home price, and other factors, but unlike the homebuyer grant launched last week, it wouldn't be reserved for first-generation buyers – only those who haven't owned a home in the past three years have owned.
The bill hasn't passed yet, but here's what you should know about the original proposal and what it would mean for home buyers if it becomes law.
Review your eligibility to buy a home (April 28, 2021).
How does a homebuyer tax credit work?
Unlike a deduction that lowers your taxable income, a tax credit directly reduces your actual tax burden. So, if you owed $ 20,000 in income tax and were in full use of the first time purchaser tax credit, you owe only $ 5,000 for this year's federal taxes ($ 20,000 minus $ 15,000).
The biggest benefit of the homebuyer tax credit is that it is refundable. This means you can increase your annual tax refund.
For example, if you owed $ 8,000 in taxes and applied for the $ 15,000 credit, you can get that $ 7,000 difference as a refund once you've submitted your return.
This measure, if passed, could put cash straight back into the pockets of home buyers. Few other first-time buyer programs are this generous.
Note that the loan can only be drawn for the year in which you bought the house. So if you buy a home in 2021, request it from next year's filings – the ones you submit by April 15, 2022 (not the ones that are currently being submitted).
How would Biden's tax credit help buyers?
When the law passes, first-time buyers of all origins can claim a one-time tax credit equal to 10% of the purchase price of their home up to $ 15,000. According to the current text of the law, houses bought after December 31, 2020 could qualify.
Bill sponsors say it is an attempt to break down barriers to home ownership – especially given soaring property prices, which have soared a whopping 12% over the year.
A first-time homebuyer tax credit could help improve affordability in the face of rising home prices, which rose 12 percent over the year.
Calling the loan an "incentive," Blumenauer said, "As house prices and demand continue to rise to historic levels, we need to do more to create opportunities for those who are excluded from home ownership."
The law could also help make home ownership more accessible to minority communities.
Home ownership rates among black and Latin American communities are currently 20% lower than white Americans and 10% lower among Asian Americans and Pacific islanders.
"The home ownership gap particularly affects families with skin color, who for too long have been disproportionately withheld from building wealth through home ownership," said Panetta.
"Families need help buying their first home so they can fully realize the American dream."
Initial Home Buyer Tax Credit Requirements
Home buyer initial tax credit eligibility is based on previous home ownership status and household income.
Buyers could not have owned a home in the past three years and their modified adjusted gross income would have to be 160% or less than the region's median income. In addition, the home purchase price must be 110% or less than the local median.
Buyers would Not have to repay the funds (as they did in previous versions of the first time buyer loan) but they do would must keep the house as their main residence for at least four years. Selling the home during this period would mean paying back part of the loan.
What about Biden's $ 25,000 Homebuyer Grant?
The First Home Purchase Act isn't the only housing bill going through Congress right now. Just last week, lawmakers tabled a draft of the Downpayment Toward Equity Act of 2021, which is designed to help Americans tackle similar housing problems, but the way this measure works is very different.
For one, the Down Payment Act is a grant for homebuyers. It offers $ 25,000 – upfront and on completion – for down payment on the first home. The funds are not a loan, do not bear interest and do not have to be repaid at any time.
This is similar to the existing Down Payment Assistance (DPA) programs, although few offer grants of $ 25,000.
Deputy Blumenauer (D-OR) has indicated that there may be room for both measures under the Biden government.
The proposed grant program also has stricter requirements. To be eligible, buyers couldn't earn more than 120% of the local median income (compared to 160% on the other bill).
Grant recipients have also not been able to own a home for the past three years and, importantly, they must be first generation buyers. This means that their parents (or the parents of fellow buyers) could not have owned a house before.
All in all, the bill is an even more concerted move to help marginalized communities buy their homes, and Blumenauer himself has indicated that there may be room for both measures under the Biden administration.
“(The First-Time Homebuyer Act) is just one element of the big, bold housing agenda we are promoting to tackle the housing affordability crisis and address centuries of openly racist and discriminatory housing policies that have left massive wealth, home ownership and opportunity Gaps between white and colored communities, ”he said.
What is the timetable for the adoption of these measures?
Both bills are currently in the drafting stage, so they have yet to be officially introduced on the floor of the house. They would then go to a committee and do various hearings and reviews, and eventually there would be markups and revisions before going to the full chamber to vote.
If those steps are successful, the bills will be forwarded to the Senate and, ultimately, to President Biden's desk for incorporation into law.
Experts have suggested that the passing could be the quickest end if this latest bill is included in the infrastructure package currently going through Congress. There's still no indication that this is the work, but since Biden himself says, "Housing is infrastructure," it wouldn't be a big surprise – especially for the bill, which so accurately reflects what he's been campaigning for.
Still, only time will tell. The only thing left now is that both the legislature and the new government have their sights set on housing reform.
Check your new plan (April 28, 2021)