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

Purchasing a home is a life-changing event. You’re on the hook for many things you probably weren’t responsible for when you rented, like landscaping, shoveling the driveway or repairing a leaky roof. There’s a whole other aspect to owning a house apart from a few chores, though. Your home also impacts your taxes.

If you’re already a homeowner, this likely isn’t news to you. However, if you’re in the market for your first home, you’ll want to understand what you can and can’t deduct, as well as any potential tax credits.

Below you can find information about such expenses, the first-time home buyer tax credit and other available tax credits to help you save money come tax time.

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 (or the amount of money your taxes are based upon), tax credits directly 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 bill by $2,000. This is why it’s important to be familiar with both tax credits and tax deductions during your house hunt.

The First-Time Homebuyer Act Of 2021: Explained

Currently, there is no first-time home buyer tax credit at the national level. The First-Time Homebuyer Act of 2021 was introduced to Congress in April 2021. However, as of August 2022, this bill would still need to be approved by lawmakers and signed into law by President Biden to go into effect.

The First-Time Homebuyer Act of 2021 was proposed because lawmakers wanted to give an incentive to low- and middle-income Americans who were looking to purchase their first homes. If passed, it would give a $15,000 refundable tax credit to eligible taxpayers within set income limits who purchase their first home.

Does The Old First-Time Tax Credit Still Exist?

This first-time home buyer tax credit was part of the Housing and Economic Recovery Act of 2008 and expired in 2010. This original first-time tax credit was enacted during the Obama administration. With the 2008 first-time home buyer 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. If passed, the First-Time Homebuyer Act of 2021 would replace this assistance.

Who Qualifies For This Tax Credit?

If passed, not all first-time home buyers would qualify for the First-Time Homebuyer Act of 2021. These are the proposed eligibility requirements to be considered a first-time home buyer under the law:

• 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.
• You can't purchase your home from a relative.
• Your income must be no more than 60% above the median income for your area. The exact income eligibility requirements depend on your income tax filing status.
• 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.

Are There Other Programs For First-Time Home Buyers?

There are still other programs available for some first-time home buyers as we wait for any movement on the First-Time Homebuyer Act of 2021.

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 and down payment assistance programs. Many of these home buying programs vary depending on your state.

State-Run Programs

Individual states may have their own tax 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.

Whether you qualify depends on the program and factors like your location, your 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.

Lender-Based Programs

Your mortgage lender may also offer specific down payment programs, like Rocket Mortgage® down payment assistance loans, or grants to assist with down payment and closings costs. Requirements will differ from lender to lender, but might include buying a home in a particular area or completing a first-time homebuyer course.

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: tax deductions reduce your taxable income, while credits directly reduce your total tax bill.

Mortgage Interest Deduction

The mortgage interest deduction is available on qualifying mortgage loans used to buy, build, or improve your home. In order to use this deduction, you must itemize. So you might not use it if the standard deduction is higher for you.

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, which lowers your taxable income, this credit directly lowers your tax bill. The credit is limited to up to $2,000 and qualification criteria varies by state.

Property Tax Deduction

If you itemize deductions, you may be able to deduct your property taxes as well. You may be able to deduct up to $10,000 combined between property taxes, sales tax and state and local income taxes. Using Rocket Money^SM, you can easily see which transaction are deductible through the year, and even export them come tax season. 

Points Or Loan Origination Fees Deduction

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

Energy Credit

There are several tax credits that are available to taxpayers that make energy-efficient improvements to their homes. This can include home solar panels, energy-efficient windows and HVAC upgrades. 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 have proposed a new one. While this new tax credit still would need to be passed by Congress and the Senate before being signed into law, there are still other tax credits and tax deductions that are available to homeowners. If you’re a first-time home buyer start the mortgage approval process with Rocket Mortgage today.