Menu burger Close thin Facebook Twitter Google plus Linked in Reddit Email
Loading
Tap on the profile icon to edit
your financial details.

First-Time Homebuyer Tax Credit

The first-time homebuyer tax credit emerged during the 2008 financial crisis to help make buying a home more affordable for Americans. Though various other mortgage programs and loans exist, the tax provision here was strictly for first-time homebuyers. Simply put, it offered homebuyers a significant tax credit for the year in which they purchased their home. Unfortunately, this credit no longer exists. However, legislation to create a new refundable tax credit of up to $15,000 for first-time homebuyers was introduced in April 2021. Below, we discuss what the tax credit program did, and explore additional mortgage programs that can still help you save on your first home. A financial advisor can help you plan for buying a home, as well as other financial goals.

What Is the First-Time Homebuyer Act of 2021?

U.S. Representative Earl Blumenauer (D-OR) and other lawmakers introduced new legislation on April 26 to support first-time homebuyers with a refundable tax credit of up to $15,000.

Dubbed the First-Time Homebuyer Act of 2021, this legislation aims to incentivize “housing stability and generational wealth-building opportunities for low- and middle-income Americans, particularly amongst historically marginalized communities,” Blumenauer said in a press release.

A similar tax credit (see the First-Time Homebuyer Tax Credit below) had been approved as part of the 2008 Housing and Economic Recovery Act. And Blumenauer said that the credit was “claimed by nearly 1.5 million households to assist in their purchase of a home.”

Text for the bill says that first-time homebuyers of a principal residence in the U.S. could claim a tax credit equal to 10% of the purchase price of the tax residence during that tax year. However, this tax credit cannot exceed $15,000.

Depending on your tax-filing status, the bill limits the credit to $7,500 for married individuals filing separately.

You should note that as of September 2021, the bill still needs to be submitted through the legislative process and approved in both chambers of the Congress before it can be signed into law by the president.

If you are looking for other tax credits, we cover some options in the “What Can You Deduct After Buying a Home” section below.

What Is the 2008 First-Time Homebuyer Tax Credit?

The Obama administration enacted the federal first-time homebuyer tax credit in 2008. Created as a response to the 2008 financial crisis, the Housing and Economic Recovery Act (HERA) allowed new homebuyers to get a tax credit of up t0 $7,500 during the first year of the initiative. In 2009, Congress increased the amount first-time buyers could earn to $8,000. After the first two years, HERA had some minor changes. Under the initiative, first-time homebuyers could either earn a tax credit or a home loan they had to repay later. Although the changes were slight, the mission was the same: aid first-time homebuyers.

Does the First-Time Homebuyer Tax Credit Still Exist?

First-Time Homebuyer Tax Credit

If you’re still looking for the first-time homebuyer credit, it unfortunately no longer exists. The program ended in 2010. However, people who purchased homes before 2010 can still benefit from the tax credit initiative. Specifically, you may still be eligible if your closing took place on or before September 30, 2010. People who purchased homes after 2010, however, won’t benefit from the tax credit.

Although the tax credit doesn’t exist anymore, you can still get mortgage help through other mortgage programs. These first-time homebuyer incentives vary both on state and local levels. But you can begin your search process with some online research. One of the best places to search for such incentives is through local and state government websites.

The Department of Housing and Urban Development (HUD) also offers several loan and grant options for homebuyers. You’ll also want to do some research on the lenders in your area. In most cases, they’ll be able to offer thorough professional advice about the programs that exist and the application process. Finally, though not all tax credit programs, you can also apply for Freddie Mac, Fannie Mae and FHA loans. Each loan option allows you to benefit from a mortgage loan even with a down payment as low as 3%.

What Can You Deduct After Buying a Home

Though the first-time homebuyer tax credit is no longer an option, there are other deductions you can still claim if you’re a homeowner. The biggest is the mortgage interest deduction, which allows you to deduct interest from mortgages up to $750,000.

Mortgage interest is the interest fee that comes with a home loan. The fee accompanies most home loans where lenders use the home as collateral for the mortgage. Mortgage interest typically comes at a fixed rate, an adjustable rate or a combination of both. The fixed-rate interest will charge the borrower a set percentage of interest over the duration of the loan. The adjustable-rate mortgage interest, however, fluctuates based on market behaviors. This means that the amount of interest you pay per month will vary. Finally, the hybrid adjustable-rate mortgage comes with an initial fixed-interest rate. However, the interest rates fluctuate after the initial period ends.

Property taxes are also a great avenue when it comes to deductions. You get to write off your annual property taxes the year you pay them. As for mortgage insurance, you can receive an insurance premium if you paid a down payment less than 20% of the home’s original value. Under IRS law, your mortgage insurance premium counts as mortgage interest that you can deduct on Schedule A of Form 40.

Bottom Line

First-Time Homebuyer Tax Credit

Though you can no longer take advantage of the first-time homebuyer tax credit, legislation to create a new refundable first-time homebuyer tax credit of up to $15,000 was introduced in April 2021.

You can also save a lot of money on your taxes through other tax breaks. The mortgage options typically vary per city and state, but don’t worry. The primary deductions any homeowner can benefit from include property taxes, mortgage interest and insurance and mortgage points. The amount of money you save will ultimately depend on your drive to research and find the available programs and options in your area.

Tips for First-Time Homebuyers

  • Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • The home buying process can be quite strenuous, so it’s important to identify your financial situation and determine whether you need mortgage insurance. If you don’t think you’ll be able to make a 20% down payment on your first purchase, remember that numerous home loan and mortgage options exist. Finding the right option will just require a bit of thorough research.

Photo credit: ©iStock.com/skynesher, ©iStock.com/sureeporn, ©iStock.com/undefined undefined

Rickie Houston CEPF® Rickie Houston writes on a variety of personal finance topics for SmartAsset. His expertise includes retirement and banking. Rickie is a Certified Educator in Personal Finance (CEPF®). He graduated from Boston University where he received a bachelor’s degree in journalism. He’s contributed to work published in the Boston Globe and has worked alongside award-winning faculty for the New England Center of Investigative Reporting at Boston University. Rickie also enjoys playing the guitar, traveling abroad and discovering new music. He is originally from Wilmington, North Carolina.
Was this content helpful?
Thanks for your input!

About Our Taxes Expert

Have a question? Ask our Taxes expert.