If you are planning to buy a new home, you must be wondering if any tax break is available or not. In 2008, President Obama created a tax credit worth $7500 for a first-time homebuyer.
In 2009, the credit increased to $8000 to encourage more people to buy houses. But the bad news is that this tax credit is not functional after 2010.
However, in 2020, President Biden proposed the $15,000 credit to homebuyers just like Obama’s policy. So, there is hope that you will get a tax credit on your first home in the coming years. But, this is not the end! There are several other ways to save money on your taxes as a new homeowner.
Keep reading the article, and we will tell you who is eligible for the first-time homebuyer tax credit. Apart from that, we will also discuss several benefits related to first-time house buyers and also reveal to you several ways to reduce tax whether you are eligible for this scheme or not.
- 1 Eligibility criteria for first homeowners
- 2 How does this process work?
- 3 Tax benefits of a first-time homebuyer
- 4 Can a new homebuyer still get credit from the Federal Government?
- 5 Final Words
Eligibility criteria for first homeowners
To qualify for first-time homebuyer tax credits, you must meet the following criteria given below:
- You are eligible if you don’t have any principal residence in the last three years of the purchase.
- If you are a single parent or a displaced homemaker who has owned a home with a former spouse, you can apply for this grant.
- Supposing that you have a property that is not in compliance with local or model building codes, you can quickly get a first homeowner tax credit.
- If you are an individual, who has owned a residence that is not permanently affixed to any foundation as per applicable regulations.
How does this process work?
American federal government offered $7500 tax credit in 2008 and $8000 in 2009 and 2010 via the Housing and Economic Recovery Act (HERA) to facilitate new consumers to buy their first home. The people who received this credit have to return it to the government in the next 15 years without any interest.
Tax benefits of a first-time homebuyer
Though the federal government doesn’t offer any benefit to the homebuyer, many states can reduce your tax burden as a new homeowner:
State and local tax credits
The state can exclude renewable energy tax credits and property relief tax credits to assist the new homeowner. Keep in mind that every state and local government have different laws. Therefore, you must visit the government office or tax professional to find a suitable package.
Many states offer saving accounts to individuals specially designed for buying a house. Here, the state collects yearly contributions on your state return, just like an IRA account.
State-level homebuyer programs
Many states provide special benefits like grants, loans, and financial help for closing costs and down payments to assist the new homeowner. These rules vary from state to state. Although these programs are not beneficial in tax, they can significantly reduce the payment burden.
Can a new homebuyer still get credit from the Federal Government?
However, first-time buyer credit is canceled in 2010, but you can still get tax credits from the federal government stated below:
Mortgage interest credit
This credit is especially for a homebuyer with a lower income. It let them convert up to $2000 of mortgage interest paid in a year into nonrefundable tax. If you pay more than $2000, the remaining will be deducted from your taxable income.
If you are a first-time homebuyer and looking for some tax exemptions, this article is the first place for you. Here, you can check the history of first-time homebuyer tax, eligibility criteria, and several other tax benefits for new homebuyers by state and federal government above.