Can I Use the First-Time Buyer Credit Now That the DASH Act Passed?

The DASH Act has introduced a first-time homebuyer credit to make homeownership more accessible through financial relief. To claim the credit, buyers must meet specific conditions and follow proper procedures.

Eligibility Criteria

Qualifying depends on income limits, prior homeownership history, and property requirements. A first-time homebuyer is someone who has not owned a principal residence in the past three years. Even previous homeowners may qualify if enough time has passed since selling their last property.

Income restrictions apply, targeting moderate- and low-income buyers. For single filers, the credit phases out at an adjusted gross income (AGI) of $100,000 and is unavailable at $150,000. For married couples filing jointly, the phase-out starts at $150,000, with full ineligibility at $250,000.

The home must be a primary residence in the U.S. Investment properties and vacation homes are excluded. Additionally, purchases from family members do not qualify.

Calculating the Credit

The first-time homebuyer credit is refundable, meaning it can reduce tax liability to zero and potentially result in a refund. The maximum credit is 10% of the home’s purchase price, capped at $15,000. A $120,000 home qualifies for a $12,000 credit, while homes priced at $200,000 or more receive the full $15,000.

The credit directly offsets federal income tax liability. If a homebuyer owes $5,000 in federal taxes but qualifies for a $10,000 credit, their tax bill is eliminated, and they receive a $5,000 refund. Unlike deductions that lower taxable income, this credit provides a dollar-for-dollar tax reduction.

Income phase-outs reduce the credit for higher earners. A single filer earning $125,000—halfway through the phase-out range—receives only 50% of the credit, while those at the upper limit receive nothing.

Documenting the Purchase

Claiming the credit requires proof that the transaction meets all conditions. The closing disclosure, which details mortgage terms, closing costs, and the purchase price, serves as primary evidence.

Additional documents may include a signed purchase agreement, executed settlement statement, and mortgage documents like a deed of trust. Cash buyers must provide proof of funds, such as a bank statement or wire transfer confirmation.

Accuracy is crucial. Errors in names, addresses, or purchase amounts can cause delays or trigger additional scrutiny. Property tax records and homeowner’s insurance policies further support the claim by confirming ownership and occupancy.

Filing Procedures

Buyers must submit Form 5405, First-Time Homebuyer Credit, with their federal tax return. This form calculates the credit and confirms eligibility. It must be attached to Form 1040 or 1040-SR. Electronic filing software generally integrates Form 5405 for accuracy, while paper filers must include it manually.

The IRS requires verification that the home is a primary residence and was not acquired through a disqualifying transaction. Errors or omissions can lead to audits or delays. If using a tax preparer, confirming the credit is applied correctly helps prevent mistakes.

Noncompliance Consequences

Improperly claiming the credit can lead to financial penalties and legal repercussions. The IRS reviews claims for compliance, and discrepancies may result in audits or repayment demands. If found ineligible, a taxpayer must return the full amount, often with interest. Intentional misrepresentation can lead to fines.

Incorrect claims may also affect future tax filings. If the IRS disallows the credit, it can adjust the taxpayer’s return, increasing their tax liability. This may delay refunds, as the IRS could subject the filer to further scrutiny. Additionally, selling the home or ceasing to use it as a primary residence within four years may require partial or full repayment. Understanding these risks helps buyers avoid costly mistakes.