What Is First-Time Homebuyer’s Tax Credit?

You’ve done it. You’ve made one of the biggest decisions in your life—to buy your first home. And you’re not alone – homeownership has not been slowed by COVID-19 or the recession that has resulted from it. The Pew Research Center reports that by the end of 2020, there were 2.1 million more homeowners than there were the previous year.

Whether you are looking for new construction homes or resale homes, the decision to buy your first home is significant in so many ways. Your first home is something to be proud of. It is something you can make your own, injecting your personality into every corner of your new home. It is also a huge financial responsibility. Fortunately, there is help in the form of first-time homebuyer credits.

 

What Are First-Time Homebuyer Credits?

First-time homebuyer credits are tax credits offered by the federal and state governments to help first-time home buyers afford to purchase a new home. On the federal level, you can take advantage of the First-Time Homebuyer Tax Credit. On the state level, it will depend on the state in which you buy your home.

The goal behind these first-time homebuyer credits is to encourage people to become homeowners. And that is good news for you because buying a home is expensive, especially when it comes to the down payment required and the closing costs you have to pay out of pocket. These expenses can put buying a home out of many people’s reach.

With this in mind, let’s look at both federal and state level first-time homebuyer credits, so you get a solid grasp on the help that’s available to you.

 

First-Time Homebuyer Tax Credit

The First-Time Homebuyer Tax Credit is part of the First-Time Homebuyer Act, a bill recently passed by Congress. This bill provides first-time homebuyers with a tax credit of 10% of the purchase price on their home up to a maximum of $15,000.

If you are buying your first home, this puts money directly into your pocket. In fact, you can qualify if you purchased your home any time after December 31, 2020. Naturally, there are a few criteria you’ll have to meet to qualify for the First-Time Homebuyer Tax Credit. These include the following:

  • You are buying your very first home or you haven’t owned a home within the last three years.
  • Your income cannot be more than 160% of the median income of the area in which you are buying.
  • The purchase price of the home cannot be more than 110% of the median purchase price in the area in which you are buying.
  • You must use the home as your primary residence for at least four years (if you don’t, you will need to pax additional taxes to pay back a portion of the tax credit).

So, what does this tax credit mean? Say you file your taxes and owe $18,000. The $15,000 credit will bring what you owe down to just $3,000. And if you only owe $11,000 in taxes, you will get a $4,000 refund. In other words, you will make back a good portion of the money you spent on your home when you file your taxes.

 

State First-Time Homebuyer Credits

Many states offer tax credits for first-time homebuyers. For example, some states, such as Texas, Florida and Missouri have an annual tax credit for first-time borrowers that allows them to convert a portion of their mortgage interest rate into an annual tax credit.

In order to find out what types of first-time home buyer credits you may be eligible for in your state, visit the website of your state mortgage agency. You may be surprised at how much help is out there when you are buying your first home.

 

Other First-Time Homebuyer Credits

Aside from the federal and state tax credits we talked about above, there are a few other credits and financial support you may qualify for as a first-time homebuyer. These include:

  • Residential Energy Efficient Property Credit: This is a federal tax credit which allows you to convert a portion of the cost of energy efficient home equipment, such as furnaces and solar electric equipment, into a tax credit.
  • State and municipal tax credits: These include property tax credits and renewable energy tax credits, but availability varies. Check with your local government office or a tax professional to find out what tax credits you are eligible for.
  • State programs: Most states also have other programs geared toward financial assistance, such as grants and help paying the down payment or closing costs when purchasing your first home.

 

Are You Eligible for First-Time Homebuyer Credits?

The federal, state and municipal tax credits we’ve talked about here are geared toward low- and middle-income renters who want to become homeowners. If you are considering buying a home, check, it is up to you to find out what help is available. Check your eligibility for the First-Time Homebuyer Tax Credit and find out what support is available at your state and municipal level, so that you go into the purchase of your first home with all the information and financial support you need.

 

Home ownership is possible. Contact us to find out more about becoming a first-time homeowner.

 

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Published 01.20.22

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