First-Time Homebuyer Tax Credit Act of 2025
The First-Time Homebuyer Tax Credit Act of 2025 would create a new refundable tax credit for individuals who buy their first principal residence in the United States. The credit would be 10% of the home’s purchase price, with a general cap of $15,000 (and a $7,500 cap for married individuals filing separately). The total credits for multiple purchasers of the same home could not exceed $15,000. The credit is subject to income- and price-based phaseouts tied to area median income and area median purchase price, and would be adjusted annually for inflation. Eligible purchases must meet specific criteria (not purchased from a related party, financed with a federally backed mortgage, and other conditions). The bill includes a four-year recapture provision if the home ceases to be the principal residence or the buyer sells, with several exceptions (death, involuntary conversion, certain transfers, armed forces duty, and job-related changes). The credit could be elected to be paid to a mortgage lender, and there are rules for advance payments to lenders and for timing, reporting, and revocation if lenders fail to comply. The legislation also adds administrative tweaks to the tax code related to these credits and clarifies certain errors as mathematical or clerical for easier processing.
Key Points
- 1First-time homebuyer credit: 10% of the purchase price, up to $15,000 total (lower cap for married filing separately), refundable against tax liability.
- 2Eligibility and definitions: tied to being a first-time buyer (no ownership in the prior 3 years, not claiming the credit before), the home must be a principal residence, purchase financed with a federally backed mortgage, and not from a related party; construction counts when the buyer first occupies the home; includes joint ownership scenarios with proportional credit allocation.
- 3Income and price phaseouts: credit is reduced based on modified AGI relative to 150% of the applicable Area Median Income, and also reduced based on area median purchase price and 110% of that price; HUD sets applicable area median income, with regulations to determine the applicable area for the buyer.
- 4Inflation adjustments and age requirement: starting after 2025, dollar limits are adjusted for inflation; the purchaser must be at least 18 years old (with married couples treated as meeting the age requirement if either spouse is 18+).
- 5Recapture and exceptions: if the buyer disposes of the home or it ceases to be the principal residence within four years, the tax liability increases by a recoverable amount (25% times the remaining years); exceptions apply (death, involuntary conversion with a new qualified residence, certain spouse transfers, armed forces/official extended duty, and employment-change dispositions).
- 6Credit transfer to lenders and advance payments: buyers may elect to let a mortgage lender receive the credit instead of the taxpayer, subject to lender registration, disclosure, and payment requirements; the Secretary would run a program to advance the credits to eligible lenders; payments to taxpayers are not taxable income to the taxpayer and lenders cannot deduct these payments; registration can be revoked for noncompliance.
- 7Reporting and enforcement: potential information reporting under section 6045 to verify eligibility, with adjustments to handle certain errors as mathematical/clerical in nature; a 4-year recapture period is defined for purposes of compliance.
- 8Effective date: amendments apply to principal residences purchased after the date of enactment.