The First-Time Buyer’s Guide to Tax Credits & Deductions

We’re the first to admit—it’s not the most exciting part of owning a home, but taxes are an unavoidable part of every homeowner's journey. In fact, for first-time buyers, this financial checkpoint is the perfect opportunity to lay a foundation for long-term financial success. From understanding different deductions and credits to navigating down payment assistance programs, this guide points the way to how proactive planning and expert help can turn a mundane chore into a strategic tool to build wealth and reach your long-term goals.

Understanding First-Time Homebuyer Tax Credits

The initial first-time homebuyer tax credit, instituted by Congress in 2008 and concluded in 2010, extended eligibility by an additional year for service members and certain federal employees. This federal tax incentive functioned as a rebate on owed income taxes, permitting a credit of up to 10% of the principal residence's purchase price capped at a maximum of $8,000.

Where the first-time home buyer tax credit stands now

Unfortunately, no current federal tax credits are made for first-time homebuyers, though there have been some false starts, including The Biden $15,000 First-Time Homebuyer Tax Credit. However, none of these initiatives have moved beyond submitting a bill to becoming law.

State tax credit for first-time homebuyers

In the absence of a current federal tax break, prospective first-time homebuyers have the option to explore Mortgage Credit Certificates (MCCs) available in their state. These certificates, issued by state housing finance agencies, enable homebuyers to claim a portion of their annual mortgage interest as a federal tax credit, with a maximum limit of $2,000. The remaining interest paid may still be calculated as an itemized deduction.

Various cities and counties may also offer support to eligible first-time homebuyers through down payment assistance, lowered interest rates, and grants. Connect with your neighborhood Mortgage Advisor for assistance with these resources.

Who qualifies as a first-time buyer?

Typically, you’re considered a first-time buyer if you’ve never purchased a primary residence. If you’ve owned a residential property before, you might still qualify as a first-time buyer if you’ve lived there for less than three years without having ownership of the property during that period. You may also be eligible in other specific circumstances, such as:

• If you are a single parent who had sole ownership of a home with a former spouse
• If your prior ownership was limited to a mobile home, manufactured home, or another residence not affixed to a permanent foundation
• If your ownership history consists solely of property that did not meet building codes and couldn't feasibly be brought up to code for a cost lower than purchasing a new permanent structure

Understanding First-Time Homebuyer Tax Deductions

First-time buyers might also be eligible for tax deductions, which operate differently than tax credits. Instead of directly reducing your tax liability by the claimed amount, a tax deduction subtracts from your taxable income. Many homeowners, including first-time buyers, may be eligible for tax deductions that can help alleviate the expenses associated with buying a home.

Mortgage interest deduction

You may have the option to deduct interest payments on mortgage balances up to a specific amount. Typically, the deduction covers mortgage interest on the first $750,000 of your loan, whether you're single, married, and filing jointly, or $375,000 if you're married and filing separately.

Mortgage points deduction

When securing a mortgage, some buyers have the chance to buy discount points. These points, obtained through an upfront fee, help decrease the loan's interest rate. Homeowners can generally deduct the cost of these discount points as interest when filing their taxes if they meet specific qualifications.

We’re the first to admit that it’s not the most exciting part of owning a home, but taxes are unavoidable in every homeowner's journey. In fact, for first-time buyers, this financial checkpoint is the perfect opportunity to lay a foundation for long-term financial success. From understanding different deductions and credits to navigating down payment assistance programs, this guide points the way to how proactive planning and expert help can turn a mundane chore into a strategic tool to build wealth and reach your long-term goals.

Understanding First-Time Homebuyer Tax Credits

The initial first-time homebuyer tax credit, instituted by Congress in 2008 and concluded in 2010, extended eligibility by an additional year for service members and certain federal employees. This federal tax incentive functioned as a rebate on owed income taxes, permitting a credit of up to 10% of the principal residence's purchase price capped at a maximum of $8,000.

Where the first-time homebuyer tax credit stands right now

Unfortunately, there are no current federal tax credits made for first-time homebuyers, though there have been some false starts, including The Biden $15,000 First-Time Homebuyer Tax Credit. However, none of these initiatives have moved beyond submitting a bill to becoming law.

State tax credit for first-time homebuyers

In the absence of a current federal tax break, prospective first-time homebuyers have the option to explore Mortgage Credit Certificates (MCCs) available in their state. These certificates, issued by state housing finance agencies, enable homebuyers to claim a portion of their annual mortgage interest as a federal tax credit, with a maximum limit of $2,000. The remaining interest paid may still be calculated as an itemized deduction.

Various cities and counties may also offer support to eligible first-time homebuyers through down payment assistance, lowered interest rates, and grants. Connect with your neighborhood Mortgage Advisor for assistance with these resources.

Who qualifies as a first-time buyer?

Typically, you’re considered a first-time buyer if you’ve never purchased a primary residence. If you’ve owned a residential property before, you might still qualify as a first-time buyer if you’ve lived there for less than three years without having ownership of the property during that period. You may also be eligible in other specific circumstances, such as:

• If you are a single parent who had sole ownership of a home with a former spouse
• If your prior ownership was limited to a mobile home, manufactured home, or another residence not affixed to a permanent foundation
• If your ownership history consists solely of property that did not meet building codes and couldn't feasibly be brought up to code for a cost lower than purchasing a new permanent structure

Understanding First-Time Homebuyer Tax Deductions

First-time buyers might also be eligible for tax deductions, which operate differently than tax credits. Instead of directly reducing your tax liability by the claimed amount, a tax deduction subtracts from your taxable income. Many homeowners, including first-time buyers, may be eligible for tax deductions that can help alleviate the expenses associated with buying a home.

Mortgage interest deduction

You may have the option to deduct interest payments on mortgage balances up to a specific amount. Typically, the deduction covers mortgage interest on the first $750,000 of your loan, whether you're single, married, and filing jointly, or $375,000 if you're married and filing separately.

Mortgage points deduction

When securing a mortgage, some buyers can buy discount points. These points, obtained through an upfront fee, help decrease the loan's interest rate. Homeowners can generally deduct the cost of these discount points as interest when filing their taxes if they meet specific qualifications.

More Money-Saving Programs for First-Time Buyers

If you’re preparing to buy your first home, don’t rely on tax benefits to help you save. First-time homebuyers may find support through public and private assistance, offered in the form of special loans, grants, and other programs.

FHA, VA, and USDA loans

These loans are tailored for first-time homebuyers and extended by federal agencies, which helps to mitigate risks for lenders, often resulting in more favorable terms and increased affordability for qualifying homebuyers.

Down Payment Assistance

Down payment assistance programs help first-time homebuyers cover the costs associated with purchasing a home, such as the down payment and closing costs. These programs vary from county to county and are designed to provide financial support to those who need help to achieve homeownership.

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You’re Never Alone with PacRes Mortgage

From first-time buyers to seasoned investors, PacRes Mortgage is ready to assist you at every step of the home purchase or refinance process, and beyond. Your future is our focus—click here to receive a custom quote today or connect with your neighborhood Mortgage Advisor.