Eager to purchase your first home but concerned about the costs involved? You may be eligible for IRS deductions and tax credits for buying a house. One of the most generous was the first-time homebuyer tax credit, but that ended years ago. Fortunately, you can pursue other tax breaks available for homeownership opportunities.
This article will review the expired tax credit for first-time home buyers, recent first-time homebuyer tax credit legislation, tax breaks you may be eligible for today, loan options and assistance programs that can save you money, how to qualify as a first-time homebuyer, and other secrets to saving money.
Key takeaways
— The First-Time Homebuyer Tax Credit, enacted in 2008, functioned as an interest-free loan to boost the housing market during the Great Recession but expired in 2010.
— A proposed 2024 First-Time Homebuyer Tax Credit offering up to $15,000 failed to pass due to budget concerns and a lack of bipartisan support.
— While no major federal first-time buyer tax credits exist today, homebuyers can still access valuable tax deductions, mortgage credit certificates, clean energy credits, and down payment assistance programs.
— Many affordable loan options and special programs remain available for eligible first-time buyers, including FHA, VA, USDA, and Fannie Mae and Freddie Mac low down payment loans.
What was the first-time homebuyer tax credit (2008-2010)?
Enacted 17 years ago as part of the Housing and Economic Recovery Act of 2008, the First-Time Homebuyer Tax Credit (Public Law 110-289) functioned as an interest-free loan from the federal government. It was offered to stimulate the housing market following the onset of the Great Recession. Eligible buyers who had not owned a home in the previous three years and who met income limits were initially allowed to claim up to $7,500 or 10% of the purchase price (for purchases made after April 8, 2008, and before Jan 1, 2009); these recipients agreed to repay the loan over 15 years (starting with the 2010 tax year) via their tax returns.
The credit was expanded in 2009 to $8,000, with repayment no longer required so long as the buyer remained in their home for at least three years. To qualify, recipients also had to meet certain income thresholds: up to $75,000 for individuals and $150,000 for married couples in 2008, raised to $95,000 and $170,000, respectively, in 2009.
“I believe this credit played a key role in reigniting confidence in housing during a period of economic weakness when people weren’t buying homes,” notes Ryan Zomorodi, co-founder of RealEstateSkills.com.
Can you still claim the first-time homebuyer tax credit?
Alas, this tax credit expired in 2010 because the housing market had stabilized and its stimulus targets had been met.
“This program isn’t available today because it was a temporary solution tied to specific economic conditions back then. Although it helped support first-time buyers at that time, re-creating it now without similar economic urgency would add significant pressure to federal budgets, especially given rising concerns about debt and inflation,” adds Zomorodi.
What is the First-Time Homebuyer Tax Credit Act of 2024?
The First-time Homebuyer Tax Credit Act of 2024 (S. 3940) was introduced as proposed legislation in March 2024 but never became law. One of the most generous credits for first-time homebuyers ever offered to taxpayers, this act would have offered a refundable tax credit equivalent to 10% of the home’s purchase price, with a $10,000 to $15,000 limit per household (or $7,500 if married filing separately), paid over three years and subject to income caps. This legislation failed to pass because of budgetary concerns and competing priorities, despite a partisan interest in helping buyers navigate today’s costly housing market.
“It did not become law due to a lack of Senate bipartisan support and a congressional stalemate on tax and housing reform,” explains Daniel Cabrera, owner of Sell My House Fast SA TX.
To qualify, you wouldn’t be permitted to own a home in the previous three years or have earnings above a certain threshold. Specifically, your income couldn’t have exceed 150% to 160% of area median income, and the home must have been priced no more than 110% of local median single-family purchase prices. The property must also have served as your primary residence.
“Skeptics of this Act highlighted its high fiscal cost amid a softening housing market, while supporters argued that the credit could have unlocked housing access for younger buyers burdened by debt and facing a tight housing inventory,” continues Zomorodi.
...in as little as 3 minutes – no credit impact
Tax credits for first-time homebuyers
Just because these two first-time homeowners credit opportunities aren’t available doesn’t mean you can’t take advantage of current ways to lower your taxes and save money as a buyer/owner. Let’s take a closer look at common tax breaks you may be eligible for, including tax credits.
A tax credit directly lowers the amount of tax you owe to the government. Instead of just reducing your taxable income, it subtracts from your final tax bill. Case in point: if your total tax due is $2,000 and you’re eligible for a $1,000 credit, your payment would be reduced to $1,000.
Currently, the only major tax credits available to homebuyers are:
·      Mortgage credit certificate (MCC). Provided by local housing authorities, this converts a portion of your mortgage interest – often 20% to 30% – into a dollar-for-dollar tax credit, up to a set limit (usually $2,000 per year), saving both on monthly costs and your tax bill.
·      Clean energy credits. Energy-efficient upgrades may qualify you for the Residential Clean Energy Credit, which offers up to 30% credit, depending on the project and year.
Tax deductions for first-time homebuyers
New homeowners might also be eligible for tax deductions, which aren’t the same as tax credits. Rather than lowering your tax bill directly, deductions reduce the amount of income the government taxes. First-time buyers, like other homeowners, could benefit from a range of deductions that help lessen the financial burden of purchasing a residence. These deductions can include:
— Mortgage interest deduction. This allows you to deduct interest paid on up to $750,000 of mortgage debt, which can mean thousands in annual savings depending on your mortgage interest rate and principal owed.
— Property tax deduction. Newly enacted legislation now allows homeowners to deduct up to $40,000 in combined state and local taxes, including property taxes, on federal returns.
— Mortgage points deduction. “If you buy down your mortgage rates with discount points, these costs are deductible upfront or over the loan term, depending on the loan’s structure,” notes Zomorodi.
— Loan origination fees deduction. These are typically considered part of closing costs and are deductible as points in the year you close if considered as prepaid interest.
First-time homebuyer money-saving programs
Shaving dollars off your tax bill can save money, but so can opting for a particular mortgage loan or special program designed to make homeownership more affordable, especially for first-time buyers. Check out these options:
— Government-backed loans. FHA loans can be had for as little as 3.5% down, versus 0% down for a USDA loan (which requires you to purchase in a designated rural or suburban area and meet income thresholds) and 0% down for a VA loan (for which you must be an eligible veteran, active duty service member, or surviving spouse).
— Fannie Mae and Freddie Mac low down payment loans. Fannie Mae offers a Conventional 97 or HomeReady mortgage that requires only 3% down; Freddie Mac provides the Home Possible or HomeOne mortgage, for which a down payment as little as 3% is required.
— Good Neighbor Next Door loans. These promise a 50% discount off the list price of a home to firefighters, police officers, teachers, and similar professions within revitalization zones.
— Housing Choice Voucher (HCV) Homeownership Program. “Eligible voucher holders can apply monthly voucher funds toward mortgage payments and approved programs,” explains Eric Rhoades with RE/MAX Realty Plus.
— HUD Dollar Homes. The Department of Housing in Urban Development (HUD) sells certain foreclosed homes for $1 to qualifying local governments or nonprofits to support affordable housing.
— IRA penalty waivers. “First-time buyers can withdraw up to $10,000 from a traditional or Roth IRA without penalty for help purchasing a home, although taxes may apply for traditional IRAs,” continues Rhoades.
— Down payment assistance (DPA) programs. Many states, including Texas, provide down payment and closing cost assistance via grants or forgivable loans to qualified buyers.
...in as little as 3 minutes – no credit impact
Who qualifies as a first-time homebuyer?
Many of these programs and tax breaks require you to be a new entrant to homeownership – meaning you haven’t purchased and owned a home before or for at least three years.
“First-time homebuyers who may also qualify include single parents who previously owned jointly with a spouse, displaced homemakers who were formerly co-owners with a spouse, and individuals having a non-permanent or non-code-conforming dwelling – such as a mobile home without a permanent foundation,” says Cabrera.
Some programs even permit previous homeowners who have endured financial hardship or foreclosure to requalify as a first-time buyer after a defined waiting period.
“First-time higher programs are one of the best-kept secrets in the real estate industry,” Zomorodi points out. “They’re not just for young people buying their very first house. They are for anyone reentering the market who meets the criteria. That’s why it’s smart to check what programs and opportunities are available. A few extra minutes of research may save you thousands of dollars.”
Conclusion
Although there is no major legislation afoot or current federal law in place that offers generous incentives to first-time buyers, candidates seeking their first home can still capitalize on several different possibilities and programs designed to yield serious savings on a home purchase and/or homeownership.
“Also, it’s smart to stack programs smartly. For example, combining tools – such as pairing an FHA 3.5% down loan with a state down payment assistance program or mortgage credit certificate – can significantly reduce your upfront and ongoing costs,” recommends Zomorodi. “Preparing early, staying organized, crunching the numbers, and aligning different mortgage programs with your financial goals is the key.”
Better Mortgage is a great option for first-time homebuyers thanks to its fully online, fast, and transparent process—with no hidden fees. They offer loan options that accommodate a wide range of credit scores and down payments as low as 3%, making homeownership more accessible and affordable.
...in as little as 3 minutes – no credit impact