Goodbye, Stress. Hello, Affordability.

First-Time Homebuyer Tax Breaks and Credits

One of the biggest stressors for first-time homebuyers is coming up with the money to actually buy a house. Between the down payment and closing costs, the upfront cash needed to secure a mortgage can feel hard to come by. However, there are programs that can help offset that high price tag after the mortgage has closed.

Mortgage Tax Credit Certificates

To make housing payments more affordable, eligible first-time homebuyers can receive a dollar-for-dollar tax credit in the form of a mortgage tax credit certificate (MCC). An MCC can reduce the monthly mortgage amount owed, effectively lowering the borrower’s monthly home loan payment.

The IRS issues MCCs to low- and moderate-income first-time homebuyers and the terms vary from state to state. One thing to keep in mind is that MCC often have upfront costs associated with them, so homebuyers that choose to capture MCCs should plan accordingly.

Note: Per the FDIC (This link opens in a new tab and is a PDF), an MCC is NOT a tax deduction.

Homeowner Tax Deductions

At tax time, your lender will have a 1098 form ready for you documenting the interest you paid on your mortgage that year. In addition to the mortgage interest, you should be advised of any points or loan origination fees you paid on that same form.

Mortgage Interest. First-time homebuyers and seasoned homeowners alike can benefit from mortgage interest deductions. If you own a house, condo or mobile home, you can deduct the mortgage interest you paid from your taxes, provided your name is on the mortgage. This extends to RVs, boats or any property with sleeping quarters, cooking space and bathroom facilities.

The limitation to a mortgage interest deduction depends on when you closed on your home. For homebuyers who closed after Dec. 16, 2017, mortgage interest can be deducted on the first $750,000. However, homeowners who closed before Dec. 16, 2017, can deduct mortgage interest on the first $1 million.

Points and Loan Origination Fees Deduction. Borrowers may also deduct any discount points or fees paid to get a mortgage from their taxes.

Property Tax. Depending on the value of your home, you may be eligible to deduct your property taxes. This deduction is limited to $10,000.

Residential Renewable Energy Credit

Sometimes, it pays to go green. By making your home more energy efficient, you could qualify for a residential energy efficient property credit that is equal to a percentage of the cost of the qualified property, including, but not limited to:

• Solar electricity
• Solar-powered water heaters
• Geothermal pumps
• Wind turbines

Proposed Programs for Future First-Time Homebuyers

On the horizon are bills introduced by the U.S. Government, in the form of first-time homebuyer credits and grants, to help alleviate the monetary stress future homeowners may feel. If passed into law, these six programs can make homeownership a reality for many people buying their first home:

• First-time Homebuyer Act of 2021 (Opens in a new tab)—This would modify the first-time homebuyer tax credit, increasing the credit amount to $15,000 for eligible first-time homebuyers. It would also replace the current purchase price-based limitation ($800,000) with one based on the area median purchase price.
• Uplifting First-time Homebuyers Act of 2021 (Opens in a new tab)—If passed, this bill would increase the limitation on penalty-free distributions from $10,000 to $20,000 on tax-exempt retirement plans for first-time homebuyers.
• Downpayment Toward Equity Act of 2021 (Opens in a new tab)—Would assist certain first-time, first-generation homebuyers purchase their first home with help from a HUD grant.
• Housing is Infrastructure Act of 2021 (Opens in a new tab)—Allows HUD to provide grants, programs, and other support to help maintain affordable housing preservation and construction, as well as mortgage access.
• Build Back Better Act (Opens in a new tab)—This bill covers a broad range of subjects which includes homeowner assistance programs.

Connect with one of our expert loan officers (Opens in a new tab) to get some guidance and answers to your pressing questions. They might even have some local tips on homebuying in your area.