Can First-Time Home Buyers Get a Tax Credit?

When it comes to federal taxes, there is no tax credit specifically designed for first-time homebuyers. If you’re certain you recall a substantial tax credit for new homeowners, you might be thinking of the gone-but-not-forgotten First-Time Home Buyer Tax Credit, which ended in 2011.³ Since then, there have been no federal first-time home buyer tax credits that have passed Congress.

The First-Time Home Buyer Tax Credit was enacted in response to the 2008 financial crisis, as part of the Housing and Economic Recovery Act (HERA) aimed to help Americans buy homes.⁴ When it initially passed, first-time homeowners under a certain income limit were able to receive a fully refundable tax credit of 10% of the purchase price of the home. But after a few amendments, the max refund was a little different depending on which year the house was purchased.⁴

If you purchased a home after March 2008, you could receive up to a $7,500 credit that had to be paid back within 15 years, without interest.³ If you purchased a home in 2009 or 2010, you could receive a refundable tax credit of up to $8,000 – and it didn’t have to be repaid.⁴

The good news is that there are some other federal tax credits new homeowners can take advantage of. The only downside is that they’re a bit more specific – and perhaps less generous – than the First-Time Home Buyer Tax Credit. That doesn’t mean they’re not worth it, you’ll probably just have to meet certain requirements beyond being a first-time home owner within a certain income range.

Mortgage Interest Credit.

The mortgage interest credit is a federal tax credit available to homeowners who were issued a Mortgage Credit Certificate (MCC) from their state or local government.⁵ MCC’s are made to help first-time homebuyers with lower income afford home ownership.

The credit lets new homeowners convert up to $2,000 of the mortgage interest they paid in a given year into a nonrefundable tax credit.⁵ If you paid more than $2,000 in mortgage interest in your tax year, whatever remains can still be itemized and deducted from your taxable income – but you’ll have to be sure to reduce your deduction by the amount you were credited.⁵

To be eligible for the mortgage interest credit, you must be a first-time home buyer, use the home as your primary residence, and meet certain purchase price and income restrictions.⁵ Figuring out the amount of your credit requires some math, which is detailed on the website of the National Council of State Housing Agencies.

Residential Energy Efficient Property Credit.

This helps taxpayers pay for qualified energy efficient equipment, like solar hot water heaters, geothermal heat pumps, small wind energy turbines, and solar electric equipment. The nonrefundable tax credit is for 30% of the costs associated with eligible equipment placed in service after January 1, 2023.⁶ It expires altogether as of January 1, 2033.⁶

Some states offer tax credits and other incentives so you can further reduce your tax burden as a new homeowner.

State and local tax credits.

Common homeowner tax credits from state and local governments include renewable energy tax credits (in addition to the available federal renewable energy tax credits) and property tax relief credits. Every state is different, so be sure to check with your government office or a tax professional to find which tax credits you might be eligible for.

First-time home buyer savings accounts.

These state-authorized accounts let individuals contribute to a savings account designated for buying a house. Yearly contributions are deductible on state returns, similar to an IRA deduction.^7,8 Not all states have first-time home homeowner savings account programs, so be sure to check if your state offers them.

First-time home buyer programs.

All 50 states plus Washington D.C. offer first-time home buyer programs to help make buying a house more affordable.⁹ While they may not offer tax benefits, these programs usually provide grants, loans, and/or financial assistance for closing costs or down payments. But programs will vary by state, so be sure to look into your state or local government’s details for any important terms and restrictions.

Tax credits aren’t the only way to save money as a homeowner – there are plenty of tax deductions available that can save you thousands of dollars every year. The catch is that these deductions will make your taxes a bit more complex, and they might not be worth it if they don’t add up to more than the standard deduction that you’d otherwise get automatically. Some of the most common tax deductions for homeowners include:^10,11

• Mortgage interest.
• Property tax.
• Home office.

For more information, read “7 Top Tax Deductions for Homeowners.”