What is the First-Time Homebuyer Credit in Texas?

Greetings to future Texas homeowners! As an experienced and trusted mortgage lender in Texas, I know that buying a home may be your most significant financial decision.

There are many things to consider, especially with your finances. We must discuss tax credits and how they can make a big difference for first-time homebuyers.

Read along as we dig deeper into how you can benefit from tax credits as you go on preparing to buy your first home in Texas.

What is a tax credit?

A tax credit is a reduction in your taxes to the government. It’s an incentive given to encourage buying a home, for example.

These credits are more valuable than tax deductions since they directly reduce the amount of taxes owed rather than lowering taxable income, which means they can provide significant savings on your tax bill.

The 2008 First Time Homebuyer Tax Credit

In the 2008 financial crisis, the first-time homebuyer tax credit emerged to assist Americans and make homes more affordable.

The program offered homebuyers a significant tax credit for the year they bought their home. The problem is this credit is no longer available.

The First Time Homebuyer Tax Credit was initiated in 2008 to help boost the housing market amid a financial crisis.

New homebuyers got a tax credit of up to $7,500 during the first year of the act, and in 2009, Congress stepped in and increased the amount to $8,000.

However, the program ended in 2010.

To qualify for the First Time Homebuyer Tax Credit, you must have been a first-time homebuyer, which means you haven’t owned a home in 3 years. If you are buying a home with a spouse, both need to meet this requirement.

Your home must also be your primary residence. You can’t claim the tax credit if you are purchasing a second home or investment property.

The tax credit directly reduces the amount of taxes you owe which can save you a lot. Let’s say you owe $10,000 in taxes and qualify for the full $8,000 credit, you only pay $2,000 in taxes.

If you are buying real estate in Texas and want to learn about your options, you can ask our loan officers at New Horizons Lending for the best available loan products.

The First Time Homebuyer Act of 2021

In April 2021, legislation to create a new refundable tax credit of up to $15,000 for first-time homebuyers was proposed. Fast forward to March 2023, the bill has not passed in Congress.

To qualify for this tax credit, you had to have been a first-time homeowner. There were also income limitations.

What are your options apart from the first-time homebuyer tax credit?

If you don’t qualify for the 2008 First Time Homebuyer Tax Credit, don’t fret because there are tax deductions that you may avail of.

Tax deductions are different from tax credits as they lower your taxable income and not the amount you pay for taxes.

Let’s say you get a $500 tax deduction, and your original taxable income was $70,000. Your taxable income after tax deduction would be $69,500.

As a first-time homebuyer in Texas, you may be eligible to claim several tax breaks like:

• Mortgage interest deduction. You may deduct the interest you pay on your mortgage from your federal income taxes.

• Mortgage points deduction. If you paid points for lower interest rates, you might be able to deduct those points from your federal income taxes.

• Property tax deduction. You may be able to remove a portion of the property taxes you pay from your federal income taxes.

• Energy efficient home deduction. If you invest in energy-efficient improvements on your home, like installing solar panels and energy-efficient windows, you may be able to claim a tax credit for 30% of the cost.

Options would vary per city and state.

At New Horizons Lending of Texas, we’ve helped first-time homebuyers navigate the home buying process, including applying for the first-time homebuyer tax credit if a borrower qualifies.

Call or message us today to help you get started.