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This article was fact-checked by our editors and a member of the Credit Karma Tax® product specialist team, led by Senior Manager of Operations Christina Taylor.
If you’re thinking about buying your first home, you may be wondering if any tax breaks are available to help. Maybe you even heard about a tax credit for first-time buyers.
Congress created the first-time homebuyer credit as part of the Housing and Economic Recovery Act of 2008, and extended the credit for a few years with the Worker, Homeownership and Business Assistance Act of 2009. But the credit was only available for a limited time: 2008–2010 for most buyers.
But even though the first-time homebuyer credit is no longer available, plenty of other programs still exist to help people buy their first home. And once you’re a homeowner, you may be able to take advantage of tax breaks designed to help ease the cost of owning a home.
- What was the first-time homebuyer credit?
- Can I take the first-time homebuyer credit?
- Are there alternatives to the first-time homebuyer credit?
- What tax breaks can I get for buying a home?
When the Great Recession hit, the federal government enacted legislation meant to help revive the economy. The first-time homebuyer credit was part of that legislation. The tax credit was for individuals and couples who purchased a new home between April 8, 2008, and Sept. 30, 2010.
There were several versions of the credit, depending on when the home was purchased, though eligibility was extended based on closing dates.
- Eligible buyers who bought homes by Dec. 31, 2008, could claim the credit in the form of an interest-free loan. They could borrow up to $7,500 and repay it over 15 years.
- For homes purchased between Jan. 1 and Nov. 6, 2009, eligible first-time homebuyers could claim a credit up to $8,000 that, in most cases, did not have to be repaid. Military members and certain other federal employees had until April 30, 2011, to buy a home.
- Beginning Nov. 7, 2009, eligible long-time homeowners could claim up to $6,500 that also didn’t have to be repaid, with some exceptions.
In July 2010, Congress extended the closing deadline for the credit until Sept. 30, 2010. But homes bought after the September deadline couldn’t qualify for the credit. And homebuyers and homeowners had to meet other specific criteria to be eligible to claim the credit, including meeting income limitations.
There’s currently no federal tax credit for today’s first-time homebuyers. Legislation was introduced in the Senate in 2018 to renew the credit, but Congress didn’t act on the bill.
If you purchased and closed on your home between April 8, 2008, and Sept. 30, 2010, and you were otherwise eligible for the credit, you may have claimed the credit when filing your income tax return in 2008, 2009 or 2010.
If you miss claiming a credit or deduction in the tax year you were eligible for, you can claim it by filing an amended return. But you have to file within three years of the date of the original return, or two years from the date you paid the tax, whichever is later. With the first-time homebuyer credit ending in 2010, it’s too late to claim via an amended tax return in 2019.How does an amended tax return work?
Homebuyers who did claim the credit used Form 5405, First-Time Homebuyer Credit, filing it with their 2008, 2009 or 2010 federal income tax return. If you’re among them and are still repaying your credit, check out the IRS First Time Homebuyer Credit Account Look-up tool to view your balance, how much you’ve paid back, how much of the credit you received and your annual repayment amount.
Although the first-time homebuyer credit is no longer available, the federal government offers and backs several mortgage programs to help homebuyers. You can also check whether your state or city offers closing-cost and down-payment assistance.
The federal government backs different types of loans to help Americans with specific financial goals, like paying for a college education or buying a house. Government-backed loans may have less-strict qualifications and be more affordable compared to other types of loans.
- FHA loans — FHA mortgages are loans from private lenders that are backed by the Federal Housing Administration. FHA loans have lower credit-score requirements than most conventional loans, borrowers can put down as little as 3.5%, and you may be able to get closing costs that are lower than on other loans or get them partly paid. But borrowers have to pay private mortgage insurance.
- USDA loans — Loans from the U.S. Department of Agriculture are for low- and moderate-income borrowers in rural areas. The agency backs the loans, which may come with no down payment and are usually cheaper than FHA loans. Borrowers have to pay an upfront fee and mortgage insurance premiums.
- VA loans — The U.S. Department of Veterans Affairs backs mortgages from private lenders. Eligible veterans, service members and their spouses pay low or no down payments and don’t have to pay mortgage insurance. Veterans can also take advantage of low-cost refinancing options and additional protections if they have trouble making payments later on.
Programs from Fannie Mae and Freddie Mac
These government-sponsored companies guarantee many of the mortgages in the U.S., and they both offer programs geared toward low-income homebuyers. Fannie Mae’s HomeReady program requires just a 3% down payment, has cancellable mortgage insurance, and allows parents and other relatives to apply as co-borrowers, which could help you qualify for the loan.
The HomePath Ready Buyer program, also through Fannie Mae, allows a 3% down payment on mortgage loans for first-time homebuyers. Buyers could also get up to 3% of the purchase price back in the form of closing-cost assistance on Fannie Mae–owned HomePath properties.
Freddie Mac’s program, Home Possible, also requires a down payment as low as 3%. Borrowers can also apply “sweat equity” to the entire down-payment and closing-cost balance and include co-borrowers on the loan — for example, if you provide materials or complete labor on a property before closing on it. The value of your labor and the materials you paid for is treated like personal funds.
Freddie Mac’s other program, HomeOne, requires at least one borrower to be a first-time homebuyer, but there are no income limits or geographic restrictions to getting the loan.
Mortgage payment help from HUD
The Department of Housing and Urban Development offers a Homeownership Voucher Program that can help low-income families make their monthly mortgage payments, as well as cover other home expenses. To be eligible for the program, you must meet requirements, including …
- Meeting HUD’s definition of a “first-time homebuyer”
- Meeting the minimum income
- Having at least one adult working full-time in your household for at least a year
- Completing a homeownership and housing counseling program
The federal government offers homeownership tax breaks to all qualifying homeowners, including first-time buyers.
Mortgage interest deduction
If you qualify, this tax break allows you to deduct mortgage interest you paid during the year on your federal income tax return. For loans taken out before Dec. 16, 2017, you can deduct interest you paid on up to $1 million of mortgage debt ($500,000 for married filing separately). If your mortgage originated on Dec. 17, 2017, or later, you can only deduct the interest on up to $750,000 of mortgage debt, or $375,000 if you’re married filing separately.
If you’re paying certain state and local taxes, including property taxes, the SALT deduction allows you to deduct up to $10,000 of these costs on your federal taxable income ($5,000 if married filing separately). The Tax Cuts and Jobs Act of 2017 cut down the amount taxpayers could claim, but there may be ways to defray your losses from the SALT deduction.
Residential energy credits
Residential energy credits are available to qualifying homeowners who make eligible energy-efficiency improvements, like installing solar panels, geothermal heat systems, wind turbines, and energy-efficient windows or heating and air-conditioning systems. The tax credit could be worth up to 30% of what you paid to install these systems.
A break for first-timers
Generally, if you take money out of an IRA before you’re 59½, you’ll have to pay income tax on the withdrawn amount plus a 10% penalty for taking an early withdrawal. But eligible first-time homebuyers who have a traditional or Roth IRA may be able to take out up to $10,000 from the account without paying the 10% penalty. The funds can be used toward a down payment for …
- Your spouse
- One of your children or a spouse’s child
- Your or your spouse’s grandchild
- A parent of yours or your spouse
Always check the tax restrictions to make sure you avoid penalties.
The costs of buying and owning a home can add up — and though taxpayers who took advantage of the first-time homebuyer credit may still be paying it back, it’s no longer available to help new first-time homebuyers chip away at those costs. But there are still government programs and tax breaks available that could help defray the cost of homebuying and homeownership.
And before you make a move toward buying your first home, make sure you understand where your credit stands and how it might affect your eligibility for traditional home loans, government-backed loans, or Fannie Mae/Freddie Mac loan programs.
Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She codeveloped an online DIY tax-preparation product, serving as chief operating officer for seven years. She is an Enrolled Agent and the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s degree in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.