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Buying a home is a major investment, and any money you can save along the way can make a huge difference. A first-time homebuyer tax credit is designed to do just that: reduce the cost of buying a home and make homeownership more accessible.

Currently, there’s no federal first-time homebuyer tax credit available. However, you may qualify for state-level tax credits. Additionally, many other programs and tax savings exist to help homebuyers and homeowners.

What is a first-time homebuyer tax credit?

A first-time homebuyer tax credit is a dollar-for-dollar reduction of your tax burden when you buy a home and meet first-time homebuyer eligibility criteria. For example, if you qualify for a $5,000 tax credit, it would directly reduce the amount of taxes you owe (or increase your refund) by $5,000.

Plus, these credits don’t only benefit first-time buyers. Because of the definition these laws tend to use, many buyers who have previously owned homes may be eligible, too.

Who qualifies as a first-time homebuyer?

Despite what the name suggests, you may be able to qualify for first-time homebuyer tax credits even if you’ve owned property in the past. According to guidelines set by the U.S. Department of Housing and Urban Development (HUD), you can qualify as a first-time homebuyer if you meet any of the following criteria:

• You haven’t owned a home in the last three years
• You’re a single parent who’s only owned a home with a spouse
• You’ve only owned property that wasn’t in compliance with local or state building codes
• You’ve only owned a mobile home that wasn’t affixed to a permanent foundation
• You’re divorced and previously owned a home with a spouse

What is the First-Time Homebuyer Tax Credit Act?

Congress passed the first-time homebuyer tax credit as a part of the Housing and Economic Recovery Act of 2008 to reduce the tax burden of buying a home. The credit was equal to 10% of a property’s purchase price, with a maximum credit of $8,000.

However, the tax credits under that law were temporary and only applied to new homebuyers between April 8, 2008 and May 1, 2010. Since then, no federal first-time homebuyer tax credit has been enacted into law.

Note: The First-Time Homebuyer Act of 2021 was introduced to Congress in April 2021. This bill was intended to raise the maximum credit limit from $8,000 to $15,000, but it failed to pass.

These tax credits were designed to help primarily low- and moderate-income buyers attain homeownership. To qualify for the 2008 to 2010 first-time homebuyer tax credit, your income needed to be less than $75,000 as a single filer or less than $150,000 as a married filer. For the 2021 tax credit, your income couldn’t exceed 160% of the area median income. Other programs may specify income limits as well.

How do I know if my state offers first-time homebuyer tax credits?

Currently, no federal first-time homebuyer tax credit exists. But first-time buyers can save money on their taxes through a mortgage credit certificate (MCC). While it’s technically a federal program, state and local Housing Finance Agencies (HFAs) administer it.

You may be eligible for an MCC if you’re a first-time homebuyer who earns no more than the greater of your state’s median income or the median income in your direct area. If you qualify, you can claim a tax credit of up to $2,000 of your paid mortgage interest.

Not all states offer MCCs. To find out if your state is one of the 28 states that do, contact your local housing authority.

Even if your state doesn’t offer MCCs, there may be other programs available to make homebuying more affordable. For example, many states offer programs for down payment assistance, low-interest loans, and more. As with MCCs, you can learn about these programs through your state’s housing authority.

Deductions vs. credits

To understand how first-time homeowner tax credits work, it’s important to know the difference between tax deductions and tax credits.

A tax deduction directly reduces your taxable income, therefore, reducing your tax burden. For example, if you have a taxable income of $60,000 and qualify for a $2,000 tax deduction, your new taxable income is $58,000. If your effective income tax rate is 14%, you’ve saved $280 on your taxes.

A tax credit, on the other hand, reduces the amount of taxes you actually owe. Say you have a taxable income of $60,000 and a federal income tax burden of $8,400 (using a 14% effective income tax rate). If you qualified for a $2,000 tax credit, your new tax would be $6,400.

Tax credits have the potential to reduce your tax burden more than tax deductions. A $2,000 tax deduction for the example above would only save you $280, while a $2,000 tax credit would save you $2,000.

Alternative homebuyer tax benefits 

Your state may not offer a first-time homebuyer tax credit, or if they do, there’s a chance you might not qualify. Luckily, homeowners can take advantage of several other tax perks:

• Mortgage interest deduction: The IRS allows you to deduct up to $750,000 of the interest you pay on your mortgage or refinance loan. You can also deduct the interest on home equity loans as long as you use the money to buy, build, or substantially improve your home.
• Property tax deduction: You can deduct certain types of state and local taxes — including property taxes — on your federal income tax return. The combined deduction amount for all state and local taxes is limited to $10,000.
• Energy tax credit: The Inflation Reduction Act of 2022 extended a program that allows you to save money by making your home more energy efficient. You can qualify for a tax credit up to $3,200 for making certain home improvements, such as installing solar panels, geothermal heat pumps, or energy-efficient doors and windows.

Frequently asked questions

Is there a first-time homebuyer tax credit for 2022?

There is no federal first-time homebuyer tax credit for 2022. However, many states offer mortgage credit certificates, which allow certain homebuyers to claim a tax credit in the year they buy their homes.

Can I get money back on taxes for buying a house?

Yes, there are several ways to get money back on your taxes for buying a house. You can deduct your mortgage interest and property taxes, or get a tax credit for any energy-efficiency improvements you make to your home.

When did the first-time homebuyer credit end?

The first-time homebuyer credit created in 2008 ended in 2010. However, there have been efforts in Congress to create a new first-time homebuyer credit.

Can you claim closing costs on taxes?

No, the federal government doesn’t allow you to get a tax benefit on your closing costs. But you can claim points you pay to lower your interest rate. You can deduct these points because they’re simply a form of prepaid interest.

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