The First-Time Homebuyer Tax Credit:
Eligibility Requirements and Limitations
As of May 2024, H.R. 7707 - The First-Time Homebuyer Tax Credit Act of 2024, was submitted to the Committee on Ways and Means on March 15, 2024; Congress has yet to vote on the bill.
The proposed $15,000 First-Time Homebuyer Tax Credit aims to help more families achieve homeownership. This incentive for first-time buyers could provide substantial savings. However, eligibility does not extend to all. There are income limits, home price caps and other criteria.
At LGI Homes, we seek to make the home-buying process simple, achievable and rewarding for new homebuyers. That includes helping you access programs like this tax credit to assist first-time buyers and creating resources about FHA, VA, USDA and conventional home loans.
So, let's explore the essential requirements around eligibility for the proposed First-Time Homebuyer Tax Credit Act and equip you with the knowledge to determine if you qualify should it be passed into law.
Eligibility Requirements for the $15,000 Tax Credit
Must Be 18 Years Old
To qualify for the First-Time Homebuyer Tax Credit, you must be at least 18 on the purchase date. This strict age threshold aims to prevent exploitation, such as an adult buying a home in your name solely to improperly claim the $15,000 tax credit on your federal return.
While you may have sufficient income and savings before turning 18, you can only use this incentive once you reach legal adulthood. Upon turning 18 and meeting other eligibility criteria, you can leverage the credit to purchase your first home as intended.
You Must Be a First-Time Homebuyer
To qualify for the tax credit, you must meet the definition of a "first-time homebuyer." For the proposed act, this is defined as someone who has yet to own a residential property or had their name on a mortgage in the past three years. This stipulation applies to primary homes, second homes and vacation properties.
If you have not owned a home (of any type) for over three years, you can take advantage of this incentive. The same applies if you currently own commercial property for business purposes. So, you are not automatically precluded from the tax credit if you owned a home several years ago.
You Can Only Use This Tax Credit Once
The First-Time Homebuyer Tax Credit legislation explicitly states that eligible buyers can only claim the $15,000 incentive once in their lifetime. For example, suppose you claim the credit in 2025 to purchase your first home. In that case, you cannot claim it again when buying another property later.
Thus, it pays to research and ensure you spend the tax credit on your dream home to maximize this once-in-a-lifetime tax incentive.
Your Income and Home Purchase Must Fit Within Prescribed Limits
To qualify for the entire $15,000 First-Time Homebuyer Tax Credit, your income and prospective home purchase price must fall under set thresholds:
- Income Limit: Your total household annual income must be less than 150% of the median income in your area, adjusted for household size.
- Purchase Price Limit: The home you buy must be at most 110% of the median home value in your intended area.
If your income exceeds the set percentage over the median, your credit starts phasing out in $750 increments per extra $1,000 earned. For instance, if your income is $2,000 over the median household income for your desired area, your available credit will reduce to $13,500.
For homes over the area's median price point, the credit decreases in amounts directly equal to those over the median. Let's say your perfect home is $5,000 over the median home price in the area. In that case, your tax credit would be limited to $10,000.
Your Home Purchase Must Be an Arm's Length Transaction
You cannot purchase a home from a close family member or relative to qualify for the tax credit. Ineligible transactions include buying property from your spouse, parent, child, sibling, grandparent, aunt, uncle, cousin or any equivalent in-law relation.
The aim is to ensure an objective, fair market price through an arm's length transaction between unrelated parties, not to enable direct transfers under preferential terms amongst relatives. While the legislation does not explicitly address relatives' trusts or entities, you should exercise caution when dealing with any seller involving familial connections.
Limitations and Repayment Conditions of the Tax Credit
Repayment Obligations if Moving Within Four Years
The First-Time Homebuyer Tax Credit aims to facilitate long-term homeownership, not house flipping or short-term speculation, so there are strict obligations regarding repayments if you sell your home shortly after purchasing it.
Specifically, you must repay 100% of the credit (the entire $15,000) if changing residences in the first year. This repayment percentage then declines to 75% in the second year, 50% in the third year and 25% in the fourth year.
It will pay to ensure that your income, career, relationships and other factors are relatively stable before utilizing the tax credit, as once claimed, you'll be committed to your residence for almost half a decade.
Limited Exceptions Exist to the Repayment Rules
There are certain specific situations where the repayment obligations may be waived or reduced after utilizing the First-Time Homebuyer Tax Credit:
- If you sell the home within four years to a non-relative and your real estate gains are less than the tax credit repayment owed, your repayment amount is lowered to equal the actual gains.
- Major life events, such as death, divorce or some specific military relocations, may trigger full or partial repayment waivers.
While these limited exceptions exist, you can only expect to avoid repayment if you retain your home for four years. It would help if you prepared for that time commitment upfront.
Is the First-Time Homebuyer Tax Credit Right for You?
As we've explored, the proposed $15,000 First-Time Homebuyer Tax Credit offers substantial savings if you can meet its eligibility guardrails and stay at your new property for more than four years.
The great news is that many LGI Homes communities feature homes that meet the credit's regional purchase price caps and are in districts aligning with income thresholds.
Our ready-to-move-in homes include designer upgrades and modern amenities as standard. They also qualify for other financial incentives, including state and federal first-time buyer home loans. We're also currently offering builder-paid closing costs in select communities.
While you wait for this tax credit legislation to pass, why not contact our New Home Consultants to discuss your eligibility further? They can tell you about current financial aid programs, show you the benefits of buying an LGI Home, and help you start the long-term planning process for homeownership.