Buying Your First Home Could Mean a Lower Tax Bill Soon

March 27, 2024 - 2 min read

Buying your first home this year? Then you may get a serious tax break — at least if a new proposal from President Biden goes through.

At his recent State of the Union address, the 46th president announced a $10,000 tax credit aimed at first-time homebuyers. And while the credit still has to be approved by Congress, it has the potential to significantly improve affordability for those looking to buy a home amid today’s high mortgage rates. In theory, it could help more than 3.5 million middle-class families buy a home in the next two years, the White House says.

Are you hoping to buy your first home soon? Here’s what the tax credit could mean for you.

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How the first-time homebuyer tax credit works

The first-time homebuyer tax credit is technically being billed as a “mortgage relief credit,” as it’s designed to offset the higher mortgage rates that buyers have dealt with for the last two years.

The average mortgage rate climbed from a record low of under 3% in 2021 to nearly 8% last fall. It’s hovered in the mid- to high-6% range ever since.

The tax credit, though, would take a bite out of those higher costs. In fact, according to the White House, “This is the equivalent of reducing the mortgage rate by more than 1.5 percentage points for two years on the median home, saving families $400 per month on their mortgage payments.”

The tax credit would be available for homebuyers purchasing their first home in 2024 or 2025 and would allow buyers to reduce their total tax bill by $5,000 for the next two years. For some taxpayers, it could even mean an increased refund.

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Who will qualify for the first-time homebuyer tax credit?

The White House hasn’t released specific eligibility requirements for the tax credit yet, as it’s currently only in the proposal stages. Once the credit hits Congress, though, more details on who can utilize the tax perk should begin to emerge.

For now, we can look to past tax credits for guidance. With President Barack Obama’s tax credit ($8,000) in 2010, buyers had to meet certain income caps. Individual buyers had to have a modified adjusted gross income of $125,000 or less, and married couples who filed their returns jointly could make no more than $225,000. You also could not have owned a home within the last three years.

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A tax credit for sellers? 

President Biden also proposed another $10,000 tax credit — this one for sellers. It’s specifically aimed at families who sell a starter home — one priced below the median home price for their area.

The proposal comes down this: Higher mortgage rates have effectively locked many homeowners in this market in recent years. Many are holding on to low rates secured during the early pandemic (think under 3%), so selling their home and getting a new loan — this time, with a 6%-plus rate — just doesn’t make sense.

Biden’s new proposal will provide an incentive for those households to move, injecting more housing inventory into the market, particularly in lower price tiers. All in all, the White House estimates it could free up nearly 3 million starter homes.

Aly J. Yale
Authored By: Aly J. Yale
The Mortgage Reports contributor
Aly J. Yale is a mortgage and real estate writer based in Houston who has contributed to Forbes and worked for organizations such as The Dallas Morning News, PBS, NBC, and Radio Disney.
Aleksandra Kadzielawski
Reviewed By: Aleksandra Kadzielawski
The Mortgage Reports Editor
Aleksandra is the Senior Editor at The Mortgage Reports, where she brings 10 years of experience in mortgage and real estate to help consumers discover the right path to homeownership. Aleksandra received a bachelor’s degree from DePaul University. She is also a licensed real estate agent and a member of the National Association of Realtors (NAR).