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Tax credits are a way for the government to offer financial incentives to taxpayers for doing certain things. They directly reduce, dollar-for-dollar, the amount of tax you owe when you file your tax return. But what is a first-time homebuyer tax credit? As the name implies, a first-time homebuyer tax credit offers this sort of tax break for people who’ve never owned a home before.
While this particular incentive ended in 2010, President Biden proposed a similar tax credit bill in March 2024. In the meantime, first-time homebuyers can still benefit from various other federal and state assistance programs offering credits, deductions and other forms of aid to make homeownership more affordable. Here’s what you need to know.
A tax credit for first-time homebuyers could be a powerful way to save money on your first home, but it’s not the only way to reduce your expenses. First-time homebuyer loans, down payment assistance and other programs can cut down on the initial expenses of buying a primary residence.
You may also save on upfront costs using a government-guaranteed FHA loan or VA loan. These programs don’t offer a tax credit or deduction but often involve a low or no down payment and other special accommodations that make it easier to afford homeownership.
One of the best ways to offset the costs of buying a property is to tap into available tax deductions. Keep in mind that most of these are only available to people who are using the property as their primary residence, and you must itemize deductions on your return.
Here are some of the costs that can be deducted after buying a home:
Although it seems obvious what a first-time homebuyer is, there is actually a technical definition of it — at least as far as many government agencies and programs are concerned.
According to the U.S. Department of Housing and Urban Development (HUD), you may qualify as a first-time homebuyer if you meet the following requirements:
Keep in mind: You could count as a first-timer even if you have technically held title to a property before and still be eligible for a first-time homebuyer tax credit.
Tax credits can be a stronger incentive than a first-time homebuyer tax deduction. A deduction only decreases your taxable income — the amount your taxes will be calculated on. In contrast, a credit directly cuts the amount of tax you pay. For example, if you owe $10,000 in federal taxes but receive a $1,000 tax credit, that reduces your tax bill to $9,000.
When there was a tax credit for first-time homebuyers, you had to meet further requirements:
You may also qualify for certain credits and money-saving programs based on how you fund your purchase. There are also programs designed to benefit people with energy-saving homes. Some homeowners also qualify for IRA withdrawals to come up with a down payment, and your state may provide first-time homebuyer credits for new owners.
The impact of the Great Recession on the U.S. economy was vast: It decimated the housing market and impacted many people’s ability to buy a home. Starting with the Housing and Economic Recovery Act of 2008, a series of federal tax credit programs were established for first-time buyers between April 9, 2008, and September 30, 2010.
Originally the incentive was to end on July 1, 2009, but the Obama Administration extended it. Then, the American Recovery and Reinvestment Act of 2009 expanded the first-time homeowner credit and increased the income eligibility of the previous tax credit.
Under the original program, qualified individuals originally were given a tax credit for 10 percent of the home’s purchase price, up to $7,500 (later increased to $8,000), which had to be repaid in equal installments over 15 years. Under the 2009 extension, the repayment requirement was no longer required if buyers remained in their homes for at least three years.
Homebuyers were eligible for the tax credit if they had never owned a home or they hadn’t owned one in three years. In addition, their annual incomes had to be under the threshold of $75,000 (for single filers) or $150,000 for joint filers to receive the full credit. There were limits on the home’s purchase price, too.
On Mar. 7, 2024, in his State of the Union address, President Joe Biden proposed a “mortgage relief credit” program, which would offer tax credits to first-time homebuyers and home sellers. Specifically, the program would provide eligible middle-class homebuyers with an annual tax credit of $5,000 a year for two years — $10,000 in total — which would effectively discount their mortgage rate by more than 1.5 percentage points (on a median-priced home). It would also offer a one-year tax credit of up to $10,000 to those who sell their starter home, defined as a residence below their county’s median home price, to a buyer who will occupy the home.
While President Biden proposed this credit, it has not been passed by Congress into law. With President Biden choosing not to seek re-election, it is unclear whether Vice President and presumptive Democratic nominee, Kamala Harris, will pursue this policy if elected President. Republican nominee and former President, Donald Trump, has no public plans for a first-time homebuyer tax credit.
