Being a first-time homeowner is an exciting phase in life. Owning a home is not only an excellent investment for your future, but it’s a big step in laying roots in a community that might be yours for the long haul. Although it’s a process that may seem confusing or stressful, remember that it’s also a time to celebrate. And to lessen the stress, we’ll help you understand all the first-time homebuyer tax credits (such as the MCC Tax Credit) that can help you along the way.
Who is a First-Time Homeowner?
We address this topic a lot, but that’s because it’s an important distinction. Past blog posts have gone into more detail, but in essence, there’s a specific definition of a “first-time homebuyer.” Let’s look quickly at the different categories to determine if you’re eligible for first-time homebuyer credits:
Be On the Lookout for First-Time Homebuyer Tax Credits
The best thing you can do as a first-time homeowner is to start searching for programs that can help you afford your new house. There are a few obvious choices, while others require a little research. Keep in mind that many first-time homebuyer tax credits are unique to specific states, regions, or circumstances. You can always find a great local or online CPA firm to help you.
MCC Tax Credit
Let’s start with what we know best: the MCC Tax Credit. The MCC program is the first-time homebuyer credit that our CPA firm specializes in, and we help new homeowners file for this perk every year from all over the country. The MCC Tax Credit can feel a bit complicated because the benefits vary from state-to-state. To calculate how much money you can claim will depend on where you live, but the maximum benefit is $2,000 per year throughout your home loan. For a 30-year mortgage, that means you can save up to $60,000!
The MCC Tax Credit works with your state to determine what percentage of the interest you pay on your annual mortgage qualifies as a tax credit. This percentage can vary from 10% to 50%, depending on where you live. Aside from the official definition of who falls into the category of a “first-time homebuyer,” the MCC Tax Credit also places some restrictions on income and home prices. These limits depend on your state, but, in our opinion, they are relatively reasonable and allow a lot of lower-income and middle-class earners to qualify for this first-time homebuyer tax credit.
When the time comes, you’ll file Form 8396 with your annual taxes to receive your credit. If you need any help in understanding the MCC Tax Credit process, don’t hesitate to reach out to us!
Obama-Era First-Time Homebuyer Tax Credit
Maybe you’re looking for the official federally established first-time homebuyer tax credit enacted in 2008. That credit allowed first-time homeowners to receive up to $7,500 in credit, which Congress increased to $8,000 the year after. Unfortunately, this was a temporary tax credit initiated in response to the 2008 financial crisis by the Housing and Economic Recovery Act. In 2010, the government suspended the benefit, but those who purchased their first home during that time might still be able to claim this tax credit retroactively.
Although this credit doesn’t exist anymore, many government programs assist new homeowners with their mortgages. Many are still in the form of tax credits, but you must work with your specific state.
That brings us to the many, many programs offered by individual states! Remember when we said some of these programs require a bit of research? It may take a little digging on your part, but you’ll be pleased to find that every state offers some sort of assistance, whether in the form of tax credits, tax deductions, low-interest loans, grants, etc.
Let’s look at a few examples:
Mortgage Interest Deduction
Now, the mortgage interest deduction isn’t technically a first-time homebuyer tax credit because it’s a tax deduction, and other homeowners can apply as well. There’s a difference between credits and deductions, where the latter reduces the amount of income the government can tax. The Mortgage Interest Deduction subtracts the interest that homeowners pay on their loans from their taxable income.
That’s a huge incentive that benefits more than just purchasing — you can use it if you’re building or improving your residence, too. The best part? You can enjoy both the benefits of the MCC Tax Credit and the Mortgage Interest Deduction.
Find the Best Lenders, Realtors, and CPA Firms
As a first-time homeowner, you need to find people who will support you and help you save as much money as possible on your purchase. Not every lender, realtor, or CPA firm will have your best interests in mind. Many won’t want to work with you because they may find some of these tax credits to be complicated. Instead of being discouraged in the process, look on the bright side: by finding the right people, you’ll have the best experience possible!
If you want to apply for the MCC Tax Credit, you need a lender and a realtor who will support that process. That means securing an MCC lender. Many realtors prefer to work with local lenders that they know personally, so it may be off-putting to suggest someone different. Remember to advocate for yourself and insist on using lenders that support these tax credits.
And when you’re ready to apply for your tax credits and deductions, find a CPA firm that specializes in these processes. Our online CPA firm offers services beyond the MCC Tax Credit and can help anyone from across the country (and expats abroad) file their tax returns.