The Skinny on First-Time Home Buyer Credit

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If you’re an average Joe/Jane like most, and not an IRS agent, tax-related things probably leave a disgusting taste in your mouth (and more questions than answers). Bets are IRS agents use Google just like us mere mortals, so don’t feel too bad. “First-time home buyer credit” are simply five tax-related words that need a bit of explaining. 

The expert loan department at Muncy Bank & Trust Company in Pennsylvania gave us a hand about where the official first-time home buyer credit stands in 2018. They also included insights on other possible tax breaks and home buyer assistance programs with top saving potential.

So if you’re looking at buying a home for the first time, these tips are for you. They could also just be interesting tidbits to bust out during dinner party conversations and trivia nights. Find out more by contacting an insurance agent in your area.

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What Was the Original First-Time Home Buyer Credit?

It was a tax “credit” available for first-time home buyers who met certain guidelines. It was introduced in 2008 by the Bush administration as part of the Housing and Economic Recovery Act. The slumping housing market needed a little face-lift, so the goal was to encourage peeps to buy homes.

The original credit acted like this:

  • Interest-free loan “credit”: It had to be repaid over the course of 15 years through the buyer’s federal income tax return (not a true credit).
  • Time period it was available: First-time buyers who closed on new homes between April 9, 2008 and January 1, 2009 could utilize the credit if they qualified. 
  • Maximum amount was $7,500 ($3,750 for married couples filing separately): The credit was equal to 10% of the purchase price of the home, not to exceed $800,000.
  • Repaying the credit: If the buyers sold the home at any time during the 15-year repayment period, the balance of the credit had to be paid in full.
  • Phase-out range (a.k.a. income limit): For individuals, it was an adjusted gross income of $75,000 to $95,000. For married couples, it was an adjusted gross income of $150,000 to $170,000.

The First-Time Home Buyer Credit After 2009

In 2009, then-president Obama stepped in and made it an official credit as part of the American Recovery and Reinvestment Act. This created different standards for anyone who bought a home from 2009 until the program ended on May 1, 2010:

  • It was a true credit: First-time home buyers did not have to pay back the credit as long as they maintained the home as their primary residence for three years after purchase. 
  • Maximum credit was $8,000 ($4,000 for married couples filing separately): The credit was still equal to 10% of the purchase price of the home.
  • Repaying the credit: If the home buyer sold the house within 36 months of purchase, the credit had to be paid back in full or in part.
  • Phase-out range: After November 6, 2009, the range for individuals was an adjusted gross income of $125,000 to $145,000. For married couples, it was an adjusted gross income of $225,000 to $245,000.

Since the first-time home buyer credit ended in 2010, first-time home buyers in 2018 are not eligible. However, first-time buyers who purchased a home between 2008 and 2010 might still be entitled. It’s best to check with an accountant to see if you might reap some beneficial dough from this retired program.

Additional Tax Breaks First-Time Home Buyers Should Still Consider

Even though the first-time home buyer credit has ended (at least for those not buying homes between 2008 and 2010), not all is lost. There are other tax breaks available that home buyers might be able to take advantage of. Here are five tax breaks that first-time home buyers (along with seasoned home buyers) should keep in mind.

first home chart
  • Mortgage interest deduction: Homeowners can deduct the interest paid on their mortgage from their taxes. Mortgage interest is any interest paid on a loan to secure a new home, including a home mortgage, line of credit, home equity loan or second mortgage. Most homeowners find this to be their biggest tax break. 
  • Real estate taxes: Home buyers can deduct the local property taxes they pay each year from their taxes for primary and secondary residences.
  • Mortgage points: These are fees that home buyers pay to lenders in order to get a reduced interest rate. One point equals 1% of the mortgage loan. These points may qualify for a tax deduction if certain parameters are met by the home buyer. 
  • Penalty-free IRA withdrawals for first-timers: Pulling from a retirement account before the ripe age of 59 ½ is ill-advised. However, first-time home buyers who need help with a down payment can pull up to $10,000 from a qualified IRA without being hit with a 10% early withdrawal penalty. Always consult with a financial advisor first to understand what affects it would have.
  • Energy efficiency tax credits: Homeowners who make certain improvements to their primary residence may qualify for a tax credit to help offset costs. The changes must improve energy efficiency or employ renewable energy. The credit varies from 10% for lower-cost improvements (e.g., windows, home insulation, skylights, furnaces, central air) to 30% for big investments like solar, wind, and geothermal. 

Home Buyer Assistance Programs

In addition to tax breaks, home buyer assistance programs are another option for first-timers looking to save some coin. Home buyer programs may differ by state and even by lender. Check out HSH's or other assistance programs for more information on buyer programs by state.

What All This Means for First-Time Home Buyers

While the official first-time home buyer program from 2008 may have ended, there are still opportunities to save during the tax season. First-time home buyers and veterans can both benefit from certain tax breaks. Our advice is to talk to a financial advisor, mortgage lender, or even a certified public accountant (CPA) to see what might be available. 

Help is still out there. While wading through all the b.s. associated with tax breaks, credits, mortgages (the list goes on forever) may seem difficult, it’s made easier with a little help from the experts. Find out more by contacting an insurance agent in your area.

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