Introduction: A Financial Boost for First-Time Buyers
Buying your first home in the U.S. is a major financial decision, and while it often comes with significant costs, it also opens the door to exclusive tax benefits and credits. These advantages are designed to make homeownership more accessible, especially for first-time buyers, helping you save thousands on your taxes and closing costs.
In this comprehensive guide, we’ll walk you through all the federal and state-level tax credits, deductions, and other financial perks available to first-time homebuyers in the United States as of 2025. Whether you’re still planning or already closing on your dream home, understanding these benefits can significantly lower your total cost of ownership.
According to the U.S. Department of Housing and Urban Development (HUD), you’re considered a first-time buyer if:
- You haven’t owned a principal residence in the last 3 years
- You’re a single parent who has only owned a home with a former spouse
- You’ve only owned property not permanently affixed to land (like a mobile home)
- You’ve owned property only outside the U.S.
These guidelines determine your eligibility for many federal and state programs, including tax benefits.
In recent years, there has been discussion in Congress about reviving the First-Time Homebuyer Tax Credit, similar to the credit offered during the 2008 financial crisis. While as of July 2025 no new law has officially passed at the federal level, legislative proposals like the “First-Time Homebuyer Act” are still under consideration.
The original 2008 First-Time Homebuyer Tax Credit allowed buyers to claim up to $7,500, later increased to $8,000, as a refundable tax credit. Unlike a deduction, a refundable credit reduces your tax bill dollar-for-dollar and can even result in a refund.
- A credit of up to $15,000, phased out at higher income levels
- Intended for buyers who have not owned a home in the past 3 years
- Designed to support low- and middle-income households
- Not yet active but expected to resurface depending on future legislation
Always check the IRS website and current year’s tax updates for the latest.
The Mortgage Interest Deduction is one of the most substantial tax benefits of homeownership. It allows you to deduct the interest you pay on your mortgage from your taxable income.
- Applies to loans up to $750,000 (as of 2025 tax rules)
- You must itemize deductions using IRS Schedule A
- Can apply to first and second homes
- Includes interest on home equity loans if used for home improvements
If you paid $12,000 in mortgage interest and are in the 24% tax bracket, the deduction could save you $2,880 in taxes.
- Get Form 1098 from your lender
- Use Schedule A to itemize your deductions
- Only beneficial if your total itemized deductions exceed the standard deduction ($14,600 single / $29,200 married filing jointly in 2025)
An MCC is a tax credit—not a deduction—offered through state or local housing agencies. It allows first-time buyers to claim a portion of their mortgage interest as a tax credit, directly reducing their tax liability.
- Credit amount typically ranges from 10% to 50% of the annual mortgage interest
- Maximum annual credit: $2,000
- Remaining interest may still be deducted under MID
- Can be claimed every year for the life of the loan, as long as you live in the home
- Must be a first-time buyer (some exceptions apply)
- Income and home price limits vary by state and county
- Must apply through a participating lender before closing
If you pay $10,000 in mortgage interest and receive a 20% MCC, your credit is $2,000 for that year—reducing your federal tax bill directly.
As a homeowner, you can also deduct state and local property taxes up to a combined $10,000 per year (or $5,000 if married filing separately).
- Included in the SALT cap (State and Local Tax deduction limit)
- Deductible only if you itemize
- Must be based on assessed value, not added services (e.g., trash collection)
When you take out a mortgage, you may pay “points” to lower your interest rate. These points are often deductible in the year paid.
- Home must be your primary residence
- Loan must be used to buy or build the home
- Deduction appears on IRS Schedule A
While less common for first-time buyers, those who are self-employed may qualify for a home office deduction if they use part of the home regularly and exclusively for business.
- Applies to self-employed individuals only—not W-2 employees
- Must be a clearly defined space used for business
- Can deduct a portion of utilities, insurance, depreciation, and internet costs
If your first home includes or is upgraded with energy-efficient improvements, you may qualify for federal tax credits.
Covers:
- Solar panels
- Solar water heaters
- Battery storage
- Geothermal heat pumps
Covers:
- Windows and doors
- Insulation
- HVAC and water heaters
Many states offer additional tax incentives or credits to support new buyers. These vary widely and can include:
- California: Offers MCC through CalHFA and DPA grants
- Texas: TDHCA offers MCCs and property tax exemptions for some buyers
- New York: SONYMA offers mortgage reductions and tax savings
- Florida: Hometown Heroes offers up to $35,000 in forgivable DPA with MCC options
- Massachusetts: First-time buyer tax exemptions on local transfer taxes in some cities
Always check with your state’s Housing Finance Agency (HFA) or local tax assessor’s office to uncover available programs.
In addition to federal and state tax benefits, many cities and counties offer local perks like:
- Homestead Exemptions: Reduce your property tax assessment
- Transfer Tax Waivers: Discounts on city/state transfer taxes
- Tax Abatement Programs: Delay or reduce property taxes for several years (common in redevelopment zones)
Here’s how you can ensure you’re getting the full value of your homeowner tax perks:
- Form 1098 from your lender
- Property tax bills
- Receipts for energy improvements
- MCC certificate (if applicable)
- A CPA or tax preparer familiar with real estate can help you claim all eligible credits and deductions
- Especially important if you own a multi-family home or rent part of your property
- IRS Publication 530 – Tax Information for Homeowners
- Form 8396 – For MCC Credit
- Schedule A – For itemized deductions
- Forgetting to claim MCC annually
- Missing the deduction deadline by not itemizing
- Assuming a tax credit exists without official legislation (like the 2025 buyer credit)
- Paying points and failing to deduct them
- Claiming home office deductions without meeting IRS requirements
Buying a home for the first time in the U.S. is a major investment—but it doesn’t have to be financially overwhelming. With the right tax credits and deductions, you can reduce your upfront and long-term costs significantly.
From Mortgage Interest Deductions and MCCs to state-level grants and energy-efficiency credits, the opportunities for first-time buyers to save are more diverse than ever.
By staying informed, working with tax professionals, and keeping careful records, you’ll be able to unlock these powerful financial benefits—and enjoy your new home with a bit more peace of mind.