A Guide to First-Time Homebuyer Tax Credits

Congratulations! You’ve decided to become a first-time homeowner. For most Americans, buying a house will be the largest purchase in their lifetime. 

This life-changing decision comes with tremendous responsibilities, and is often considered an essential first step toward developing long-term generational wealth. To incentivize and enable first time homebuyers, various tax credits have been introduced to encourage young Americans to become first-time homeowners.

What is the First-Time Homebuyer Credit?

During the 2008 financial crisis, the Bush administration implemented the Federal First-Time Homebuyer tax credit to assist more Americans with buying a home. The Housing and Economic Recovery Act (HERA) enabled first-time homebuyers to receive a tax credit of up to $7,500 during the first year. 

Later in 2009, the amount first-time homebuyers could receive increased to $8,000. Due to the 2008 Financial crisis, the program ended in 2010.

In 2021, U.S. Representative Earl Blumenauer (D-OR) and other lawmakers introduced the First-Time Homebuyer Act of 2021 to support first-time homebuyers with a refundable tax credit of up to $15,000.

Who would qualify for the First Time homebuyer credit? 

  • Age majority requirement: the homebuyer must be at least 18 years of age, or married to a person who is 18 years of age.
  • Must be a first-time homebuyer: the homebuyer must have not owned a home before nor been a co-signer on a mortgage loan within the last thirty-six months. 
  • Must not exceed income limitations for the area: The homebuyer must earn a modest income relative to their location and household size. Eligible homebuyers must earn an income that’s no more than 60 percent above the median income of their location. 
  • Must be purchasing a primary residence: no second homes or rental properties
  • Must stay in the home for at least 4 years or you will have to pay the money back. 

Please Note: The First-Time Homebuyer Tax Credit of 2021 is still a bill, and is subject to change by the time it becomes law. Track H.R.2863 – First-Time Homebuyer Act of 2021  H.R.2863 still needs to be approved in both chambers of Congress and then signed into law by the president before first-time homebuyers can claim it. As of the time of this writing, September 2, 2022, the First-Time Homebuyer Tax Credit is still a bill and has not yet been passed into law.

While the bill makes its way through the chambers of congress, there are several other first-time home buyer grants and credits that are available now, among them are state and local government First-Time Home Buyer grants and other types of first-time homebuyer programs such as state-specific Down Payment Assistance (DPA) programs like the Florida Hometown Heroes Housing Program, and tax credits available to first time home buyers.

What Can You Deduct As a First-Time Homeowner

  • Homeowners can claim a mortgage interest deduction, which allows them to deduct interest from mortgages up to $750,000.
  • Homebuyers can write off annual property taxes the year they are paid.
  •  Mortgage insurance premiums
  •  Loan origination fees
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