Buying a home does not just build equity — it can also reduce your tax bill. First-time buyers often miss deductions they are entitled to because no one explains them clearly. This guide covers every major federal and state tax benefit available to new homeowners, so you can use them from day one.
Before you get to tax time, getting the right mortgage matters just as much. LendingTree makes it easy to compare lenders and find the best rate for your credit profile and down payment.
Is There a Federal First-Time Home Buyer Tax Credit?
As of 2026, there is no active federal tax credit specifically for first-time home buyers. The original First-Time Home Buyer Credit from 2008 expired years ago. Congress has proposed new versions, but none has been enacted into law at the time of writing. Check the IRS website or consult a tax professional for the latest status.
That said, homeownership comes with several valuable deductions that lower your taxable income. These are not credits (which reduce taxes dollar-for-dollar) but they still add up to meaningful savings.
Mortgage Interest Deduction
This is the largest tax benefit most homeowners use. If you itemize deductions, you can deduct the interest you paid on your mortgage during the year.
For mortgages taken out after December 15, 2017, the deduction applies to the first $750,000 of loan principal (or $375,000 if married filing separately). For mortgages taken out before that date, the limit is $1 million.
Example: If you have a $300,000 mortgage at 7% interest, you will pay roughly $20,900 in interest in your first full year. You can deduct that $20,900 from your taxable income if you itemize.
Keep in mind that itemizing only saves you money if your total itemized deductions exceed the standard deduction. In 2026, the standard deduction is approximately $14,600 for single filers and $29,200 for married couples filing jointly. Many first-time buyers, especially those with larger mortgages, do benefit from itemizing.
Property Tax Deduction
You can deduct state and local taxes (SALT), including property taxes, up to a combined limit of $10,000 per year ($5,000 for married filing separately). This limit was introduced by the 2017 Tax Cuts and Jobs Act and remains in place.
If you live in a high-tax state like California, New York, or New Jersey, this cap may limit the benefit. In lower-tax states, you may be able to deduct most or all of your property tax bill.
Mortgage Points Deduction
When you close on your home, you may pay “points” (also called discount points) to lower your interest rate. In most cases, points paid at purchase are fully deductible in the year you buy the home, as long as certain conditions are met:
- The loan is secured by your primary home
- The points are a percentage of the loan amount (not a flat fee)
- Paying points is an established practice in your area
- The points do not exceed the amount typically charged in your area
Points paid on a refinance must generally be deducted over the life of the loan, not all at once. Consult a tax professional if you are unsure.
Private Mortgage Insurance (PMI) Deduction
If your down payment was less than 20%, you likely pay PMI. PMI deductibility has come and gone over the years as Congress extends or lets the provision expire. Check IRS Publication 936 or consult a tax professional for its current status in 2026.
Home Office Deduction (If You Work From Home)
If you use part of your home exclusively and regularly for self-employment or business work, you may qualify for the home office deduction. This applies to freelancers, independent contractors, and some business owners — but not W-2 employees who work remotely.
You can calculate the deduction using the simplified method ($5 per square foot, up to 300 square feet) or the regular method (actual home expenses prorated by the percentage of your home used for business).
Energy Efficiency Tax Credits
The Inflation Reduction Act of 2022 extended and expanded tax credits for energy-efficient home improvements:
- Energy Efficient Home Improvement Credit: Up to $3,200 per year for qualifying improvements like insulation, efficient windows, heat pumps, and electric panel upgrades.
- Residential Clean Energy Credit: 30% credit for solar panels, battery storage systems, and geothermal heat pumps installed through 2032.
These are actual credits — meaning they reduce your tax bill dollar-for-dollar, not just your taxable income.
Compare Lenders Who Help You Maximize Your Tax Position
| Lender | Best For | Min Credit Score | Min Down Payment | Notable Feature |
|---|---|---|---|---|
| LendingTree | Comparing multiple offers | 580 (FHA) / 620 (conventional) | 3.5% (FHA) / 3% (conventional) | See rates from up to 5 lenders at once |
| Rocket Mortgage | Fast digital process | 580 (FHA) / 620 (conventional) | 3.5% (FHA) / 3% (conventional) | Fully online application, fast closings |
| Better.com | Low fees | 620 | 3% | No lender fees or commissions |
| New American Funding | Flexible credit situations | 580 | 3.5% | Manual underwriting available |
State and Local First-Time Buyer Tax Benefits
Many states offer their own tax credits or deductions for first-time home buyers. Examples include:
- Mortgage Credit Certificates (MCCs): Available in many states, these allow eligible first-time buyers to claim a tax credit equal to a percentage of the mortgage interest paid each year — on top of the federal deduction. The credit typically ranges from 20% to 25% of annual interest. MCCs are issued through state housing agencies and must be obtained at the time of purchase.
- State property tax exemptions: Some states offer homestead exemptions that reduce the taxable value of your primary residence.
- First-time buyer savings accounts: A growing number of states allow tax-deductible contributions to dedicated first-time homebuyer savings accounts (similar to an IRA for a down payment).
Your state housing finance agency website is the best place to check what programs are available where you live. Ask your lender about MCCs early in the process — Rocket Mortgage and other large lenders can help you apply for an MCC alongside your loan in qualifying states.
IRA Withdrawals for First-Time Buyers
The IRS defines “first-time home buyer” broadly for IRA purposes — you qualify if you have not owned a primary residence in the past two years. Under this rule:
- Traditional IRA: You can withdraw up to $10,000 without paying the 10% early withdrawal penalty. You will still owe regular income tax on the amount.
- Roth IRA: You can withdraw contributions at any time tax- and penalty-free. You can also withdraw up to $10,000 in earnings penalty-free if the account has been open for at least five years.
This is a lifetime limit, not annual. It applies to each individual — a married couple can each withdraw up to $10,000.
What Records to Keep
Save the following documents to support your deductions:
- Form 1098 (Mortgage Interest Statement) — your lender sends this each January
- Closing Disclosure from your purchase (shows points paid)
- Property tax bills and receipts
- Receipts for any energy-efficient improvements
- MCC certificate if your state issued one
Should You Itemize or Take the Standard Deduction?
Whether homeownership tips the scales toward itemizing depends on your total deductions. Add up your mortgage interest, property taxes (up to $10,000 SALT cap), and any other itemized deductions like charitable contributions. Compare that number to the standard deduction for your filing status. If itemizing gives you more, use it.
A tax professional or software like TurboTax can run both scenarios and tell you which method saves more in your specific situation.
The mortgage interest deduction alone makes homeownership more financially rewarding for many buyers. To get there, start with the right mortgage. Compare lenders on LendingTree and find the rate and terms that work for your budget.
For more on the buying process, see our complete first-time home buyer guide and our breakdown of loan types for first-time buyers.