So you’re a first-time homebuyer, and you’re ready to make that big purchase — congratulations! Buying your first home is an exciting time that you should enjoy as much as you can. However, anxiety or confusion around money often clouds excitement. We want to help, so we’re highlighting a few tax credits that assist and support first-time homebuyers.
What Are Tax Credits
First, let’s determine what exactly tax credits are and how they can help you. Tax credits work as incentives and are specific amounts of money that individuals can subtract from taxes that they owe the government. They decrease the exact amount of tax one owes, which differs from deductions, which reduces taxable income. If you don’t owe too much on your taxes, then that tax credit becomes money that the government pays you.
If you’re buying your first home, there are a few tax credits and programs that you can use to reduce your overall costs. Unfortunately, the well-known tax credit enacted by President Obama in 2008 is no longer available (it closed in 2010). However, there are a few others you can pursue.
MCC Tax Credit
We’re going to start with the MCC Tax Credit because our firm specializes in it. The MCC Tax Credit varies from state-to-state, so to understand exactly how much money you can save will depend on where you live. However, the value of this credit can be as high as 50% of the mortgage interest that you pay each year, meaning that you can save up to $2,000 per year for your entire home loan. For a 30-year mortgage, that’s $60,000 worth of savings!
Keep in mind that the MCC Tax Credit, much like many state and federal incentives, enforce some requirements and limits. With this credit, restrictions vary depending on where you live and include caps on annual income and home prices.
Mortgage Interest Deduction
The mortgage interest deduction isn’t a tax credit, nor is it specific to first-time homebuyers. However, it’s a favored incentive that allows homeowners to subtract the interest they pay on any home loan from their taxable income. These loans could be used for purchasing, building, or improving any residence. And as a bonus, those that use the MCC Tax Credit can simultaneously claim up to $3,000 for the mortgage interest deduction!
Many states have individualized programs that offer incentives for those buying their first home. It takes a little digging, but almost every state offers some sort of assistance. Keep in mind that many of these programs focus on specific cities, counties, or regions. These programs range from tax credits, deductions, low-interest loans, and more.
For example, in Hawaii, the County of Kaua’i Home Buyer Loan Program offers low-interest rates on loans for eligible buyers. In Oakland, California, the city provides a Mortgage Assistance Program. This program helps first-time homebuyers bridge the gap between their financials and the price of their home. It does this by providing funds to help with closing costs and down payments.
Those are just two examples of the numerous state programs available. A little research will help you find what initiatives your state, city, or county provides. And if you need any assistance, you can always contact us, as we’re a professional accounting firm that does it all!