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Does The First-Time Home Buyer Tax Credit Still Exist?

Dan Miller4-minute read
January 21, 2022

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Purchasing a home is a life-changing event. You’re responsible for many things you may not have been if you rented, including mowing the lawn, shoveling the driveway and repairing a leaky roof. There’s a whole other aspect to owning a house apart from a few chores, though. Your home also affects how the IRS taxes you.

If you’re already a homeowner, this isn’t news to you. However, if you’re in the market for your first home, we've got valuable information for you.

Below you can find information about what you can and can’t deduct, the first-time home buyer tax credit and other available tax credits. These tips can help you become a tax-savvy homeowner.

What Is A Tax Credit?

Tax credits are reductions in the amount of income tax that you have to pay each year. Unlike tax deductions, which reduce your taxable income, tax credits lower the amount of tax you have to pay, dollar for dollar. If you qualify for $2,000 in child tax credits, for example, that means that you have just lowered your tax liability by $2,000. First-time home buyers need to be familiar with both tax credits and tax deductions during their house hunt.

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The First-Time Homebuyer Act Of 2021: Explained

The First-Time Homebuyer Act of 2021 was introduced into Congress in April 2021. Note that as of January 2022, this bill would still need to be approved by lawmakers and signed into law by President Biden before it becomes effective. Lawmakers wanted to give an incentive to low- and middle-income Americans who were looking to purchase their first homes. This program would give a $15,000 refundable tax credit to eligible taxpayers who are purchasing their first home.

Who Qualifies For This Tax Credit?

Not all first-time home buyers would qualify for the First-Time Homebuyer Act of 2021. These are the proposed eligibility requirements:

  • Being a first-time home buyer: you cannot have owned a home for the past 3 years and you must be purchasing your primary residence
  • You must not have previously used the first-time home buyer tax credit, and you can't purchase a home from a relative
  • Income requirements: your income must be no more than 60% above the median income for your area. Exact income eligibility requirements depend on your income tax filing status.
  • Age: you must be at least 18 years old

If you meet the eligibility requirements, you would be eligible to get a tax credit for 10% of your home's purchase price, up to a maximum of $15,000.

Does The Old First-Time Tax Credit Still Exist?

The original first-time tax credit was enacted during the Obama administration. With the 2008 first-time homebuyer tax credit program, you could get an interest-free loan for 10% of your home's purchase price, up to a maximum of $7,500. This first-time home buyer tax credit was part of the Housing and Economic Recovery Act of 2008, and expired in 2010.

Are There Other Programs For First-Time Home Buyers?

Even though the old tax credit program has ended, there are still other programs available for some first-time home buyers.

HUD Grant Assistance/Programs

The U.S. Department of Housing and Urban Development (HUD) offers many different programs for first-time home buyers. These include services from housing counseling to specific mortgage programs. Many of these home buying programs vary depending on which state you live in.

State-Run Programs

Individual states may have their own credits available for first-time home buyers, but down payment assistance is far more common. Whether you live in California, New York or somewhere in between, a good place to start your search is HUD’s local home buying page.

How you qualify depends on the program and factors like your location, gross income and the loan amount.

Want to reach out to someone directly? Contact your local HUD office to see what programs you may qualify for.

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What Tax Deductions And Credits For Homeowners Can I Still Use?

There are still some tax deductions that home buyers can use to their advantage. It is important to remember that tax deductions and tax credits are different.

Mortgage Interest Deduction

The mortgage interest deduction is available on qualifying mortgage loans used to buy, build or improve your home. The deduction can be taken as standard or itemized, whichever is higher and therefore more helpful for those filing.

 

There is also a mortgage interest credit available on federal taxes to help recapture some interest. It’s intended to help low- to moderate-income families afford homeownership. Unlike a deduction, this credit can directly lower your tax bill.

 

To claim the deduction, you must get a mortgage credit certificate (MCC) from an authorized state or local government agency. The credit is limited to up to $2,000 and qualification criteria varies by state.

Property Tax Deduction

You may be able to deduct your property taxes as well, if you itemize deductions. You may be able to deduct up to $10,000 combined between property taxes, sales tax and state and local income taxes.

Points Or Loan Origination Fees Deduction

Origination fees and points are generally considered prepaid interest, and as such are generally tax deductible. Consult with your tax advisor to see what may be available to you.

Energy Credit

There are several tax credits that are available to taxpayers that buy energy-efficient improvements to their home. This can include home solar panels, energy-efficient windows and HVAC. Ask a tax professional about the residential tax credit and whether your new home qualifies.

The Bottom Line

The old first-time home buyer tax credit expired in 2010, but lawmakers are proposing adding a new one. While this new tax credit still would need to be passed by Congress before being signed into law, there are still other tax credits and tax deductions that are available to homeowners. Make sure to check out the Rocket HQSM Learning Center for more home buying resources.

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Dan Miller

Dan Miller is a freelance writer and founder of PointsWithACrew.com, a site that helps families to travel for free/cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids.