First-Time Homebuyer Act Offers $15,000 Credit, But Comes With a Four-Year Catch

This new legislation, the First-Time Homebuyer Tax Credit Act of 2025, sets up a substantial, refundable tax credit aimed squarely at helping people get into their first home. Here’s the deal: if you meet the definition of a first-time buyer—meaning you haven't owned a residence in the last three years—you can claim a credit equal to 10% of the home's purchase price, capped at a maximum of $15,000. This is a refundable credit, meaning if you owe less than $15,000 in taxes, you get the difference back as a refund.

The Immediate Cash Option: Trading Tax Breaks for Closing Funds

One of the biggest game-changers in this bill is the option to bypass the tax return process entirely and get the cash upfront. Instead of waiting for a tax refund next year, the buyer can elect to transfer this credit directly to their mortgage lender at closing. The lender then hands the buyer a check equal to the credit amount right then and there. For someone struggling to scrape together closing costs, this immediate liquidity is huge. The bill explicitly states that this payment from the lender isn’t taxable income for the buyer, which keeps the benefit pure. This mechanism is a massive lever for affordability, turning a future tax benefit into immediate cash to cover down payments or closing costs, which are often the biggest hurdles for first-time buyers.

The Income and Price Guardrails

Before you count that $15,000, know that the credit is subject to some serious limits designed to keep the benefit focused. First, your income matters: the credit starts shrinking if your Modified Adjusted Gross Income (MAGI) exceeds 150% of the Area Median Income (AMI) for your location. This means if you’re a high-earner in a low-cost area, you might miss out. Second, the home price matters: if the purchase price is more than 110% of the Area Median Purchase Price, the credit amount also gets reduced. These rules are designed to prevent the credit from being used to subsidize luxury purchases or inflate prices in already expensive markets, but they could also limit the benefit for middle-income buyers in high-cost-of-living areas where even starter homes push past those median price thresholds.

The Four-Year Recapture: The Catch

Here’s the fine print that everyone needs to read carefully. If you claim this credit, you are essentially agreeing to live in that home as your main residence for at least four full tax years. If you sell the home or stop using it as your main residence within that four-year “recapture period,” you generally have to pay back a portion of the credit. The repayment is calculated as 25% of the original credit amount multiplied by the number of full tax years remaining in that four-year window. For example, if you sell after two years, you have two years remaining, so you’d owe back 50% of the credit.

This recapture rule is a major constraint. While it’s intended to prevent flipping, it creates a potential financial trap for regular folks. Say you bought a house and claimed the full $15,000 credit, but then two years later, you have to move for a new job that doesn't meet the bill’s specific exceptions. You’d be on the hook for $7,500. The bill does carve out exceptions for death, involuntary conversion (like a house fire), or specific military/government service transfers, but if you simply need to move for a better job or family reasons, that repayment clock is ticking. This could discourage mobility for those who need it most.

Paperwork and Procedural Hurdles

Finally, the bill is very strict on documentation. To claim the credit, you must attach a properly signed copy of the settlement statement to your tax return. If you forget this form, the IRS can treat the claim as a clerical error and deny the credit. For busy people who might use basic tax software or file quickly, this small procedural step is a critical tripwire that could cost them thousands of dollars. The bill also sets a hard age limit: you must be at least 18 years old at the time of purchase, a detail the IRS is authorized to check against your records.