First-Time Homebuyer Tax Credit Act of 2025
The First-Time Homebuyer Tax Credit Act of 2025 would create a new tax credit intended to help first-time buyers purchase a principal residence in the United States. The core of the bill is a 10 percent credit of the purchase price, capped initially at $15,000, that can be used to reduce or offset the taxpayer’s liability for the year in which the purchase occurs. The credit is subject to multiple eligibility tests and phaseouts based on the homebuyer’s income relative to area-specific standards (Area Median Income) and the local area’s median purchase price. The bill also introduces several related features: (i) a definition of “first-time homebuyer,” (ii) rules for how the credit can be shared among multiple buyers, (iii) an option to transfer the credit to the mortgage lender (with upfront payment to the buyer), (iv) a four-year recapture window if the home is sold or ceases to be the principal residence, and (v) inflation adjustments and various administrative provisions (including reporting and enforcement mechanisms). The act applies to purchases after enactment and includes provisions to treat certain errors as mathematical or clerical mistakes for easier correction. In short, if enacted, the bill would broadly expand a federal tax incentive for first-time homebuyers, but with careful means-testing based on local incomes and housing prices, plus protections to ensure the credit is tied to a primary residence and recaptured if the home is sold soon after purchase.
Key Points
- 1Credit amount and cap; first-time buyer eligibility; 10 percent of the home’s purchase price, with a maximum credit of $15,000. If more than one person purchases the home, the total credit is shared but cannot exceed $15,000, and married filing separately would have a lower cap ($7,500).
- 2Eligibility and phaseouts based on locality; income- and price-based reductions. The credit is reduced based on (a) modified adjusted gross income (MAGI) relative to 150 percent of the area median income, scaled by a factor tied to 20 percent of the area median income, and (b) the difference between the purchase price and 110 percent of the area median purchase price, scaled by 15 percent of the area median purchase price. The reductions are designed to prevent larger credits in higher-cost or higher-income areas.
- 3Definitions and purchase rules; which buyers and transactions qualify. A “first-time homebuyer” must have had no ownership interest in a residence during the 3-year period ending on purchase and must not have claimed the credit before. A “purchase” requires a sale not from a related person, financing with a federally backed mortgage loan, and a basis not set by related-party rules; construction is treated as a purchase when the buyer first occupies the home.
- 4Recapture and protections; if you sell or cease to use the home as your principal residence within four years, the credit is partially recaptured (25 percent of the credit for each remaining year in the four-year recapture period, with limits). There are exceptions for death, involuntary conversions, certain transfers between spouses/divorce, active-duty military-related dispositions, and certain employment-related disposals.
- 5Transfer option and upfront lender payments; a mechanism to elect to have the credit allocated to the mortgage lender instead of the buyer. The lender must register with the Secretary, disclose the value of the credit and amount advanced to the buyer, and make an upfront payment to the buyer equal to the credit amount (non-taxable to the buyer). The lender’s incentives and other promotional offers must not undermine the election.
- 6Administration and enforcement; the bill includes reporting requirements to verify eligibility (potentially under section 6045) and creates limited remedies for certain math or clerical errors. It also introduces inflation indexing for the credit amounts after 2025 and clarifies that principal residences purchased after enactment are covered.
- 7Effective date; the amendments apply to principal residences purchased after the date of enactment (i.e., purchases made once the bill becomes law).