# First-Time Home Buyer Tax Credits and Deductions: What You Can Claim in 2026
Owning a home creates several tax advantages that renters do not have access to. For first-time buyers, understanding which credits and deductions apply — and which do not — is part of making the full financial picture of homeownership work.
This guide covers the federal tax benefits available to homeowners in 2026, the state-level credits that vary by location, and the common mistakes that cost buyers money at tax time.
As you prepare to buy, comparing mortgage options is also part of optimizing long-term costs. [LendingTree]({{AFFILIATE_LINK_LENDINGTREE}}) lets buyers compare personalized offers from multiple lenders simultaneously — lower rates mean more of your payment goes to principal and less to interest over time, which affects both your deductible amount and your equity build.
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## Federal Tax Benefits for Homeowners
### Mortgage Interest Deduction
The mortgage interest deduction is the largest tax benefit for most homeowners. Interest paid on the first $750,000 of mortgage debt (for mortgages originated after December 15, 2017) is deductible if you itemize deductions.
**How it works:** If you pay $18,000 in mortgage interest in the first year of a $300,000 loan at 7%, that $18,000 is potentially deductible. At a 22% tax bracket, that deduction reduces tax liability by roughly $3,960.
**Important caveat:** The deduction only benefits you if your total itemized deductions exceed the standard deduction. For 2026, the standard deduction is approximately $15,000 for single filers and $30,000 for married filing jointly. Many homeowners — especially in early years when interest payments are highest — clear this threshold. But buyers with smaller loans or lower rates may not.
**How to claim it:** Your lender sends a Form 1098 each January showing total mortgage interest paid. Enter this on Schedule A when you itemize.
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### Property Tax Deduction (State and Local Taxes — SALT)
Homeowners can deduct state and local property taxes — but this deduction is capped at $10,000 total per year for all state and local taxes combined (including income or sales tax). This cap was introduced by the 2017 Tax Cuts and Jobs Act and remains in effect for 2026.
For homeowners in high-property-tax states like New Jersey, Illinois, Connecticut, and New York, the $10,000 cap limits the benefit significantly. For buyers in lower-tax states or rural areas, the full property tax amount is often deductible under the cap.
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### Mortgage Points Deduction
If you paid discount points to buy down your mortgage rate at closing, those points may be fully deductible in the year paid — provided the loan was used to purchase your primary residence. This is an exception to the general rule that points on a refinance must be deducted over the life of the loan.
**Example:** Paying 1 point ($3,000) on a $300,000 purchase loan is fully deductible in the year of purchase if you itemize. At a 22% bracket, that is $660 in immediate tax savings.
Closing costs and fees other than mortgage points are generally not deductible.
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### Home Office Deduction
Homeowners who use a dedicated space exclusively for business may qualify for the home office deduction. The space must be used regularly and exclusively for business purposes — a kitchen table or shared family room does not qualify.
This deduction applies to self-employed individuals. W-2 employees working remotely are not eligible for the home office deduction under current law.
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### Capital Gains Exclusion (When You Sell)
While not a benefit at purchase, this is worth understanding from day one: when you sell your primary residence, you can exclude up to $250,000 of capital gains from taxes if you are single, or up to $500,000 if married filing jointly. The exclusion applies if you have owned and lived in the home for at least two of the five years before selling.
This benefit is significant for first-time buyers in appreciating markets. A couple who buys a $350,000 home and sells for $600,000 five years later avoids taxes on the entire $250,000 gain under the exclusion.
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## What Does Not Qualify
Several costs that sound like they should be deductible are not:
**Down payment:** Not deductible.
**Closing costs (except points):** Most closing costs — appraisal, title search, recording fees, attorney fees — are not deductible. Mortgage points on a purchase are the main exception.
**Homeowners insurance premiums:** Not currently deductible for most buyers.
**Principal payments:** The principal portion of your mortgage payment is not deductible — only the interest.
**PMI (Private Mortgage Insurance):** PMI was previously deductible, but that deduction expired under current law and has not been permanently extended. Check IRS guidance for the current tax year.
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## State-Level First-Time Buyer Tax Credits
Several states offer additional tax credits specifically for first-time buyers. Unlike deductions (which reduce taxable income), credits directly reduce tax owed dollar for dollar.
**Mortgage Credit Certificate (MCC):** The most widely available state-level benefit. An MCC converts a percentage of mortgage interest paid into a federal tax credit — typically 20%–25% of interest paid each year, up to $2,000. The remaining interest is still deductible.
**Example:** On $18,000 in mortgage interest with a 20% MCC rate, you get a $2,000 tax credit (not a deduction — a direct dollar reduction in taxes owed) plus the ability to still deduct the remaining $16,000 as a mortgage interest deduction.
MCCs are issued through state housing finance agencies, typically in conjunction with a first mortgage from an approved lender. Not all lenders offer MCCs — this is worth confirming when shopping lenders.
**State-specific programs:** Many states offer additional credits for first-time buyers, particularly for purchases in targeted areas or for buyers at lower income levels. Program details vary significantly:
– Ohio, Georgia, and Maryland have offered first-time buyer credits in recent years
– Some states offer property tax abatements for first-time buyers in designated neighborhoods
– Many cities offer incentives for purchases in revitalization zones
Check your state housing finance agency website for current offerings.
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## How the Mortgage Interest Deduction Interacts with Your Loan Choice
The type of mortgage affects the interest deduction:
– Higher rates mean more interest paid, which means a larger deductible amount — but more interest paid overall. The deduction partially offsets, but never fully cancels, the cost of a higher rate.
– FHA loans tend to have more total interest paid over time due to MIP (mortgage insurance premiums). See the [first-time home buyer loan types comparison](/first-time-home-buyer-loan-types/) for how FHA vs. conventional affects long-term costs.
– Paying points at closing to buy down the rate is immediately deductible for purchase loans, creating a situation where the upfront cost is partially subsidized by tax savings.
The [how much house can I afford guide](/how-much-house-can-i-afford/) covers the full picture of carrying costs, including how to estimate the tax benefit in your affordability math.
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## Lender Comparison for First-Time Buyers
While choosing a lender does not directly affect your tax situation, the interest rate does. Lower rates mean less interest paid, which affects both your deductible amount and your total cost of ownership.
| Lender | Min Credit Score | Notes on Rates and Fees |
|—|—|—|
| [LendingTree]({{AFFILIATE_LINK_LENDINGTREE}}) | Varies | Compare multiple offers to find the lowest rate |
| [Rocket Mortgage]({{AFFILIATE_LINK_ROCKET_MORTGAGE}}) | 580 (FHA) / 620 (conv.) | Fully digital; competitive rates for qualified buyers |
| [Better]({{AFFILIATE_LINK_BETTER}}) | 620 | No origination fee; often lowest upfront cost for strong-credit buyers |
| [New American Funding]({{AFFILIATE_LINK_NAF}}) | 500 (FHA) | Good for buyers stacking DPA programs with MCCs |
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## Common Tax Mistakes First-Time Homeowners Make
**Taking the standard deduction when itemizing would save more.** Run the calculation both ways during the first year — the combination of mortgage interest, property taxes, and any points paid can push itemized deductions above the standard deduction.
**Missing the MCC opportunity.** Many buyers who qualified for a Mortgage Credit Certificate do not claim it because they did not know it existed at the time of purchase. MCCs must be issued before or at closing — they cannot be applied retroactively.
**Not tracking deductible expenses throughout the year.** Keep records of all home-related expenses — interest paid, property taxes, any casualty losses — rather than waiting until tax season.
**Assuming all closing costs are deductible.** Only mortgage points and certain prepaid interest items qualify. Most other closing costs do not.
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## Bottom Line
The mortgage interest deduction, property tax deduction, and capital gains exclusion represent real financial advantages of homeownership — but they require itemizing and understanding what qualifies. For first-time buyers, the biggest near-term benefit is often a Mortgage Credit Certificate from a state housing agency, which can reduce federal tax owed by up to $2,000 per year for the life of the loan.
Understanding these benefits starts before closing — the right lender and loan type can affect which tax programs you qualify for. [LendingTree]({{AFFILIATE_LINK_LENDINGTREE}}) is a practical starting point for comparing lenders including those who participate in MCC programs.
For further reading: [FHA loan requirements for first-time buyers](/fha-loan-requirements-first-time-buyers/) and [closing costs for first-time buyers](/closing-costs-first-time-buyers/) cover the upfront costs and loan mechanics that interact with these tax benefits.