After the housing crisis, the Obama Administration offered a first-time homebuyer credit, which helped first-time homebuyers afford a home. Unfortunately, the credit stopped in 2010, but there are other mortgage assistance programs that help make homeownership more affordable.
What Was the First Time Homebuyer Credit?
The first-time homebuyer credit started as a credit of up to $7,500 in the first year of homeownership. After just two years, Congress increased the tax credit to $8,000. The program officially ended on September 2010.
The credit offered first-time homebuyers a $7,500 – $8,000 on their taxes the year they bought a home. If you bought your home in 2008, you must pay the tax credit back at the rate of $500 per year until 2025. If you bought your home in 2009 or 2010, the repayment requirement doesn’t pertain to you as Congress eliminated it in 2009.
Homebuyers that sell his or her home within 15 years of taking the tax credit must repay the credit in full. IRS Form 5405 will help you calculate how much you owe based on the time left in the 15-year period. If you bought your home between 2009 and 2010, you only have to repay the tax credit in full if you sell the home within the first 36 months.
Other Tax Deductions for First-Time Homebuyers
Even though the first-time homebuyer tax credit doesn’t exist any longer, you can still take advantage of other breaks on your taxes.
The largest deduction is the mortgage interest deduction. Homeowners can deduct the interest on mortgage amounts up to $750,000 under President Trump’s new laws.
Since a large part of your mortgage payments is interest when you first take out a loan, this deduction can be helpful for first-time homebuyers. As a word of caution, though, you must be able to itemize your deductions in order to take advantage of the interest deduction. If you don’t have enough deductions to exceed the $12,200 deduction for individuals or $24,400 for couples, writing off your mortgage interest won’t matter.
The next largest deduction most homeowners can take is the property tax deduction. You are able to deduct the property taxes you paid during that calendar year, even if they covered the taxes of the prior year. Again, you must be able to itemize your deductions in order to take advantage of this savings.
Another large deduction is mortgage points. If you paid origination points because the lender charged them or you opted for discount points to get a lower rate, you can write off the points on your taxes. Mortgage points are equal to prepaid interest. The lender makes the money upfront rather than during the loan when you make your payments. The difference with mortgage points though, is that you must spread out the deduction over the life of the loan rather than taking the entire deduction at once.
All homebuyers can take advantage of the tax deductions available today. If you are a first-time homebuyer looking to save money on buying a home, consider talking to a mortgage lender or your local HUD office to see what programs are available to you. Each state and even county within the state has different programs that help promote homeownership. The programs can help you own your first or subsequent home easier.Click to See the Latest Mortgage Rates»