Buying your first home? You’re probably staring at a mountain of costs—down payments, closing fees, property taxes. That’s where first-time homebuyer tax credits come in. Who doesn’t want to legally keep more cash in their pocket?
The government gives tax breaks to encourage homeownership, but most buyers don’t take full advantage. Let’s make sure you don’t leave money on the table.
What Is a First-Time Homebuyer Tax Credit?
Tax credits are not the same as deductions. A deduction reduces your taxable income, but a tax credit reduces the actual amount you owe the IRS. That’s cold, hard savings.
If you qualify as a first-time homebuyer, you might get:
- A direct credit on your taxes
- Deductions for mortgage interest
- State-based programs that cut costs
In 2024, there’s talk about federal tax credits coming back, but states already offer plenty of help. Let’s look at how to use them.
Who Qualifies as a First-Time Homebuyer?
Think you’re out because you’ve owned a home before? Not so fast.
The IRS says you’re a first-time buyer if you haven’t owned a home in the last three years. That means if you sold a house five years ago, you could still qualify.
You must also:
- Buy a primary residence (no investment properties here)
- Meet income limits set by tax programs
- Use the property as your main home
States might have extra rules, so always check local laws.
Your Biggest Tax Credit Opportunities
There’s no single magic button that gives you savings—it’s a mix of federal and state first-time homebuyer tax credits. Here are the most valuable ones:
1. Mortgage Interest Deduction
Homeowners can deduct mortgage interest on their taxes. That’s a big win, especially in the early years when most of your payments go toward interest.
If you itemize your taxes, you could write off thousands. The IRS lets you deduct interest on loans up to:
- $750,000 for joint filers
- $375,000 if you’re single or married filing separately
Check with a tax pro if this fits your situation.
2. Local and State Programs
States often offer homebuyer assistance, and these programs can stack with federal tax credits.
For example, some places offer:
- Down payment assistance (grants or low-interest loans)
- Property tax reductions for first-time buyers
- State-level tax credits that lower what you owe
Check your state’s housing authority website for current programs in your area.
3. Energy Efficiency Credits
Upgrading your home’s energy efficiency? The IRS might help pay for it.
If you install:
- Solar panels
- Energy-efficient windows
- High-efficiency heating or cooling systems
You might qualify for federal and state tax credits. That’s extra savings for making smarter home upgrades.
FAQs
Do first-time homebuyer tax credits still exist in 2024?
The federal tax credit expired, but Congress keeps discussing new versions. Meanwhile, states have their own tax breaks and down payment programs.
What’s the difference between a tax credit and a tax deduction?
A credit cuts what you owe directly. A deduction just lowers your taxable income, which reduces your tax bill a little.
How do I claim these tax credits?
Many of the credits require filing forms with your tax return. A tax pro can help, or you can use software like TurboTax to guide you.
Are there income limits for first-time homebuyer tax credits?
Yes, many programs set income limits. These vary by state and program, so check local housing agencies.
Conclusion
There’s no reason to pay more tax than necessary. Take advantage of first-time homebuyer tax credits and keep more money in your pocket. Need more smart home-buying tips? Check out our blog for more ways to save.
