Buying a home has become increasingly out of reach for Americans, who are grappling with a double whammy High interest rates Home values rise. In his State of the Union address Thursday, President Joe Biden proposed a new tax credit that would provide $10,000 to first-time homebuyers.
Biden as well suggestion A separate $10,000 tax credit for current homeowners who sell their “starter home” in order to move to a larger home. That could help the real estate market thaw as homeowners who held low mortgage rates during the pandemic are hesitant to move because they now face much higher mortgage rates.
Biden's proposals — which must be enacted by Congress — have been welcomed by affordable housing advocates, with National Housing Council CEO David M. Dworkin calling them “the most important State of the Union address on housing in more than 50 years.” On a practical level, tax breaks would reduce the costs of purchasing a home, an issue that affects Americans of all ages and backgrounds.
“Housing affordability has become a major issue for Americans across demographics and political divides, and housing policy has remained mostly flat in recent congressional budgets,” Nick Lutke, an associate economist at Moody's, noted in a report on Biden's efforts.
Here's what to know about the proposals.
What tax breaks does Biden give for home purchases?
Biden is proposing two tax breaks aimed at helping Americans buy homes at a time when housing affordability is close to zero Lowest level ever.
Currently, Americans must earn a Six-figure salary To comfortably buy a typical home, compared to $59,000 just four years ago. House prices have rose about 27% Since the start of the pandemic, while mortgage rates have risen, making purchasing more expensive.
To help offset the cost of purchasing a home, Biden proposes the following tax breaks:
- $10,000 first-time homebuyer tax credit
- A one-year tax credit of up to $10,000 for current homeowners who sell their primary home
The tax credits are seen as a bridge to help people buy a home while mortgage rates are high. As a result, these benefits will not be permanent, but instead will be offered to homebuyers who purchase properties in 2024 or 2025, a senior Biden administration official told CBS MoneyWatch.
The Federal Reserve is expected to cut its key interest rate later this year, which would ease the cost of borrowing for all types of loans, from mortgages to credit cards.
Who will be eligible for tax credits?
First-time home buyers will be eligible for an annual tax credit of $5,000 per year for two years, for a total of $10,000.
The one-year tax credit for existing homeowners will be available to people who own starter homes, which are defined as homes that are below the median home price in their county. The owners would have to sell to another owner, rather than an investor, according to the White House.
Both tax credits are geared toward “middle-class families,” with a Biden administration official telling CBS MoneyWatch that the credits will be limited to households earning less than $200,000.
How do tax breaks affect the housing market?
The Biden administration said the tax breaks would help unfreeze the real estate market and make home purchases more affordable for millions.
The first-time buyer tax credit could help 3.5 million middle-class families buy their first home, as the tax credit provides a reduction equivalent to about 1.5 percentage points for two years on the average-priced home, i.e. the White House. He said In the current situation. She added that the homeowners' tax credit would help about 3 million families buy a larger home.
“Many homeowners have lower interest rates on their mortgages than current rates,” the White House said. “This ‘lock-in’ effect makes homeowners more reluctant to sell and give up that low a price, even in circumstances where their current home no longer fits their family’s needs.”
When will these tax breaks take effect?
That's unclear, because Congress would need to pass legislation to change the tax code, an uphill climb with Democrats and Republicans at odds ahead of the November election.
Moody's Lutke noted that passing the tax breaks could be “a particularly daunting task in an election year — though their inclusion in the speech highlights the salience of the high cost of housing for Americans across the country.”
The White House wants to see Congress pass legislation to enact the tax credits this year, which would allow homebuyers and homeowners to get the tax credits starting in the 2024 tax year. The Biden official said homebuyers would get a two-year credit they can claim on their tax returns starting in the year Tax year 2024 or 2025.