First-Time Homebuyer Tax Credits: What They Mean for You

First-Time Homebuyer Tax Credits Explained

By Julie Marion, The First Time Homebuyer Workshop 

We’re breaking down one of the hottest topics in the housing market during a presidential campaign: First-Time Homebuyer Tax Credits.

Here, our mission is simple: to empower first-time buyers with the knowledge to make smart, confident decisions. Buying your first home is exciting—but let’s be real, it’s also overwhelming. You’re suddenly dealing with five or more different professionals (agents, lenders, inspectors, appraisers, title reps) and each has their own rules, jargon, and paperwork. No wonder so many people feel lost.

That’s why we deliver bite-sized “acorns of knowledge” 🌱—so you can build your understanding step by step and avoid costly mistakes. Ideally, you’d start learning six months before your house hunt begins. This way, you walk into the process confident, informed, and ready.

And here’s a sobering truth:
👉 50% of first-time buyers regret their purchase.
👉 In November 2023, 92% of all buyers—first-time or not—said they experienced regret.

That’s exactly what we’re working to prevent.

🔑 Why Tax Credits Matter (But Shouldn’t Be Your Only Reason to Buy)

Every few years, politicians float First-Time Homebuyer Tax Credit proposals. You might be watching this after the 2024 election, but here’s the thing: these proposals keep coming back, no matter who’s in office or running for office.

Tax credits can be a nice boost 💸, but they should never be your only reason to buy a home. The timing of your purchase should depend on your personal readiness—not just politics. That said, if you can align your purchase with a credit and it fits your situation, it’s a smart financial move.

📊 A Look Back: Do Tax Credits Really Move the Needle?

After the 2008 housing crisis, Congress introduced the First-Time Homebuyer Credit, offering up to $7,500 (later $8,000). It boosted sales in 2009–2010, but when the credit expired, the housing market slowed again.

👉 Lesson: Tax credits spark short-term activity but don’t create lasting increases in homeownership.

📝 Presidential Tax Credit Proposals Compared

Here are the highlights of three recent tax credit ideas:

General First-Time Buyer Rules

• Must not have owned/co-signed a mortgage in the last 3 years
• Must live in the home as your primary residence
• Home price must be under the area’s median home price
• Income limits based on Area Median Income (AMI)

Donald Trump’s Proposal

• 💵 $5,000 non-refundable credit
• Available to all first-time buyers (no income limits)
• Downside: If your tax liability is under $5,000, you won’t get the full benefit

Kamala Harris’s LIFT Act (2023)

• 💵 $15,000 refundable credit
• Income capped at $125K (single) / $250K (married)
• Designed to support middle- and lower-income families

Biden Administration Proposals (past versions)

• Credits tied to Adjusted Gross Income and AMI limits
• Similar in concept to Harris’s plan, just with slightly different thresholds

📉 Market Reality Check

Here’s the bigger issue: the U.S. is short 3.8 million homes (Freddie Mac estimate). Even with tax credits, the real challenge is inventory. 🏘️

Many “housing gurus” focus on affordability, but the supply side matters just as much. Urban planners are now looking at converting abandoned malls and office parks into housing—because land supply is fixed, but demand isn’t going anywhere.

💡 How to Work These Credits to Your Advantage

This is where strategy comes in:

• Check Income Limits Carefully
  • Harris & Biden’s proposals rely on your Adjusted Gross Income (AGI).
  • If you’re close to the cutoff, look for deductions that could reduce AGI.
• Consider Buyer Pairings
  • Some buyers drop one co-borrower (if their credit is weak or income too high) to qualify.
• Match Tax Liability to Credit Rules
  • Trump’s plan requires you to owe at least $5,000 in federal taxes.
  • That means planning your deductions so you don’t reduce your liability too far.
• Do a “Dry Run” ✈️My grandfather had a friend Pete Lucky and Pete was expecting family arrive at the Detroit airport.  Neither person had been to the airport in years so, they thought they should do a "dry-run" so that they wouldn't run into any problems the day of the "true" pickup.  
  • Like my granddad’s pre-airport practice run, do the math before you buy.
  • Test if your situation lines up with the credit rules before making an offer.

📑 How to Claim a First-Time Homebuyer Credit

• Form 5405 – Attach it to your tax return
• Proof of Eligibility – Haven’t owned a home in 3+ years
• Income Documentation – Double-check your AGI
• Property Details – Purchase date, price, and address

🏦 Don’t Forget the Other Tax Benefits

Even beyond credits, homeowners can deduct:

• Mortgage interest - you should also run the amount of interest you will pay in the first calendar year.  One time I had a client buy a home and because the house was so far into the year, it was May, and the price of the house & interest rate they did not get to deduct the interest the first year they owned the home - Do the math. 
• Property taxes - you can check with the local jurisdiction and also find out if there are any proposed tax increases.  Many governments run on a fiscal year so, the increase could take place after you buy. 
• Some closing costs (if itemized)

This is why understanding your amortization schedule is so important.

📈 The Bigger Picture: Wealth Building Through Homeownership

According to the Urban Institute, homeownership is one of the strongest wealth-building tools for middle-class families. It creates equity, stability, and long-term financial security—things renters rarely achieve.

Your homework 📚:
👉 Start following Federal Reserve updates. Interest rates and inflation reports will directly affect your mortgage options.

Common Questions About First-Time Homebuyer Tax Credits

Q1: What is the difference between a refundable and non-refundable tax credit?
A refundable credit means you can get the full amount back even if you owe little in taxes. Non-refundable means you can only use it to offset taxes you actually owe.

Q2: Do I have to pay back the First-Time Homebuyer Credit?
Most current proposals do not require repayment, unlike earlier versions in 2008. Always verify the terms when Congress passes a final version.

Q3: How do I know if I qualify for income limits?
Use the Fannie Mae AMI Lookup Tool  to check income thresholds in your area. Compare it against your AGI from your latest tax return.