Last Updated: January 2026

If you're buying your first home, you might be wondering about the famous first-time homebuyer credit. While the original federal tax credit from 2008-2010 is long gone, several valuable tax benefits remain available to first-time homebuyers in 2024, 2025, and 2026. From Mortgage Credit Certificates (MCCs) that provide ongoing tax credits to deductions for mortgage interest and property taxes, understanding these tax year benefits can save you thousands.

This guide explains every tax credit and tax benefit available to first-time home buyers through tax season, including how Mortgage Credit Certificates work, what tax credits and deductions you can claim on your federal tax return, and state-specific first time homebuyer tax credits that might be available where you live. First-time homebuyers may qualify for significant savings through these programs related to homeownership.

The Original First Time Home Buyer Tax Credit (2008-2010)

Let's address the elephant in the room: the federal first time homebuyer tax credit no longer exists. The credit was available during the 2008-2010 housing crisis but is no longer available. According to the Internal Revenue Service (IRS), the original credit was a refundable tax credit that provided significant tax breaks for buyers. Here's what it was:

• 2008 version: Up to $7,500 tax credit (interest-free loan to be repaid over 15 years)
• 2009-2010 version: Up to $8,000 true tax credit (no repayment required)
• Long-time resident credit: Up to $6,500 for those who owned for 5+ years

This program expired on September 30, 2010. Despite occasional proposals to revive it, as of 2026, there is no active federal first time home buyer tax credit. However, you may be eligible for other homeowner tax benefits, and grants and other programs can help offset the cost of buying your primary home.

However, this doesn't mean first time buyers are without tax benefits. Several significant programs and deductions remain available.

Mortgage Credit Certificates (MCCs): The Best Kept Secret

Mortgage Credit Certificates are arguably the most valuable tax benefit for first time home buyers that most people don't know about. An MCC allows you to claim a federal tax credit, not just a deduction, for a portion of the mortgage interest you pay each year.

How Mortgage Credit Certificates Work

When you have an MCC:

1. You pay mortgage interest throughout the year
2. Your MCC specifies a credit rate (typically 20-30%)
3. You calculate your credit: mortgage interest paid × credit rate
4. You claim this amount as a federal tax credit on your return
5. The remaining mortgage interest can still be claimed as a deduction

Tax Credit vs. Tax Deduction: A tax credit reduces your tax bill dollar-for-dollar. A $2,000 tax credit saves you $2,000 in taxes. A tax deduction only reduces your taxable income, a $2,000 deduction in the 22% bracket saves you $440.

MCC Example Calculation

Let's say you have a $300,000 mortgage at 6.5% interest:

• Annual mortgage interest (year 1): ~$19,200
• MCC credit rate: 25%
• Tax credit: $19,200 × 25% = $4,800
• Maximum credit: $2,000 (for credit rates above 20%)
• Your actual credit: $2,000
• Remaining deductible interest: $19,200 - $2,000 = $17,200

This results in a $2,000 direct reduction in your tax bill, every single year you have the mortgage!

MCC Qualification Requirements

MCCs are issued by state housing finance agencies and the Department of Housing and Urban Development with these typical requirements. Check your credit report before applying, as federal income taxes and other factors matter:

• First time buyer: Haven't owned a home in past 3 years (exceptions for targeted areas)
• Income limits: Usually 100-115% of area median income
• Purchase price limits: Maximum varies by county
• Primary residence: Must live in the home
• New mortgage: Usually for purchase loans only, not refinances

States Offering MCCs

Many states offer Mortgage Credit Certificate programs:

Contact your state housing finance agency for current rates and availability

How to Get an MCC

1. Confirm your state offers MCCs through its housing finance agency
2. Verify you meet income and purchase price limits
3. Work with an MCC-approved lender (not all lenders participate)
4. Complete required homebuyer education
5. Apply for the MCC when applying for your mortgage
6. Pay the MCC fee (typically $300-$500)
7. Receive your certificate before or at closing

MCC and Your Buying Power

One significant benefit: some lenders count your MCC tax credit as additional income when qualifying you for a mortgage loan. A $2,000 annual credit adds $167/month to your effective income, potentially helping you qualify for a larger loan. MCCs can be combined with FHA loans, conventional loans, and other first-time home buyer programs.

Mortgage Interest Deduction

The mortgage interest deduction is available to all homeowners, not just first time buyers. It allows you to deduct the interest paid on your home mortgage from your taxable income.

How the Mortgage Interest Deduction Works

• Eligible interest: Interest paid on mortgages for your primary residence and one additional home
• Loan limit: Deductible on up to $750,000 of mortgage debt (for loans after Dec 15, 2017)
• Prior loans: $1 million limit for mortgages taken before Dec 16, 2017
• Must itemize: Only available if you itemize deductions (not standard deduction)

Mortgage Interest Deduction Example

For a $350,000 mortgage at 6.5%:

• Year 1 interest paid: ~$22,400
• Tax bracket: 24%
• Tax savings: $22,400 × 24% = $5,376

Important: You only benefit from this deduction if your itemized deductions exceed the standard deduction ($15,000 single, $30,000 married filing jointly in 2026). Many taxpayers, especially in lower-cost areas, may not itemize.

Combining MCC with Mortgage Interest Deduction

If you have an MCC, you can still deduct the mortgage interest that isn't covered by the credit:

• Total interest paid: $22,400
• MCC credit (25%): $5,600 (capped at $2,000)
• Deductible interest: $22,400 - $2,000 = $20,400

You get the $2,000 tax credit plus the deduction on $20,400 in interest.

Property Tax Deduction (SALT)

Homeowners can claim property tax deductions for state and local taxes (SALT), including property taxes, on their federal return. The tax credit provided through deductions and credits helps with current tax obligations. Filers who own a principal residence may be able to deduct these costs.

Current SALT Deduction Rules

• Deductible taxes: Property taxes plus state income or sales taxes
• Maximum deduction: $10,000 total ($5,000 if married filing separately)
• Must itemize: Only available with itemized deductions

Property Tax Deduction Limitations

The $10,000 SALT cap significantly limits this benefit for homeowners in high-tax states. If you pay $15,000 in property taxes and $7,000 in state income tax, you can only deduct $10,000 total.

Points Deduction

If you pay discount points to lower your mortgage interest rate, these may be tax-deductible.

How Points Work

• One point = 1% of loan amount: On a $300,000 loan, one point costs $3,000
• Points lower your rate: Typically by 0.25% per point
• Deductibility: Usually deductible in full in the year paid for a home purchase

Requirements for Deducting Points

To deduct points in full the year you pay them:

• The loan must be secured by your main home
• Paying points must be common practice in your area
• Points cannot exceed typical rates for your area
• You must have paid enough (down payment, other closing costs) to cover the points
• Points must be clearly shown on your closing disclosure

State First Time Home Buyer Tax Credits

Several states offer their own first time home buyer tax credits beyond MCCs:

District of Columbia

DC's First-Time Homebuyer Individual Income Tax Credit:

• Up to $5,000 tax credit
• Applied against DC income taxes
• For purchases in DC as a primary residence
• Income limits apply

Ohio

Ohio Mortgage Tax Credit:

• Up to $2,000 annual tax credit
• Through Ohio Housing Finance Agency
• For first time buyers meeting income limits

Pennsylvania

Pennsylvania offers property tax and rent rebate programs for qualifying homeowners, particularly seniors and those with disabilities.

Maryland

Maryland offers a Homeowner's Tax Credit for qualified homeowners experiencing increased property taxes.

Finding State Credits

Contact your state housing finance agency and state department of revenue to learn about available tax credits. New programs are created and existing ones change frequently.

IRA Withdrawal for First Home Purchase

While not a tax credit, first time home buyers can access retirement funds without the usual penalties.

Traditional IRA First-Time Homebuyer Exception

• Amount: Up to $10,000 lifetime
• Penalty waived: 10% early withdrawal penalty is waived
• Taxes still apply: Withdrawal is taxed as ordinary income
• First time buyer: Haven't owned in past 2 years
• Use within 120 days: Must use funds for home purchase within 120 days

Roth IRA for Home Purchase

Roth IRAs offer even better flexibility:

• Contributions: Can always be withdrawn tax-free and penalty-free
• Earnings: Up to $10,000 in earnings can be withdrawn penalty-free for first home
• 5-year rule: Account must be at least 5 years old to withdraw earnings tax-free
• No taxes on contributions: You already paid taxes on Roth contributions

Should You Use Retirement Funds?

While accessing IRA funds is possible, consider carefully:

• Lost growth: Money withdrawn can't grow tax-advantaged
• Retirement security: You may need those funds later
• Other options: Down payment assistance programs may be better alternatives

Consult a financial advisor before withdrawing retirement funds for a home purchase.

Home Office Deduction

If you work from home, your first home might qualify for the home office deduction.

Requirements

• Regular and exclusive use: Space used only for business
• Principal place of business: Where you primarily conduct business
• Self-employed or certain employees: Not available for W-2 employees working remotely for convenience

Calculation Methods

• Simplified method: $5 per square foot, up to 300 sq ft ($1,500 max)
• Regular method: Actual expenses proportional to office space percentage

Energy Efficiency Tax Credits

When you buy a home, you may have opportunities for energy-related tax credits. Anyone considered a first-time homebuyer may claim a tax credit for home improvements:

Energy Efficient Home Improvement Credit

For improvements to your new home:

• Insulation and air sealing: 30% of costs up to $1,200
• Windows and skylights: 30% of costs up to $600
• Exterior doors: 30% of costs up to $250 each ($500 total)
• Heat pumps: 30% of costs up to $2,000
• Water heaters: 30% of costs up to $2,000

Residential Clean Energy Credit

For clean energy installations:

• Solar panels: 30% of costs (no cap)
• Solar water heaters: 30% of costs
• Geothermal heat pumps: 30% of costs
• Battery storage: 30% of costs (3 kWh or greater capacity)

Proposed First Time Home Buyer Tax Credits

Several proposals for new federal first time home buyer tax credits have been discussed:

First-Time Homebuyer Tax Credit Act

Various versions have proposed:

• $15,000 refundable tax credit
• Available to first time buyers
• Income limits would apply
• As of January 2026, not enacted into law

Downpayment Toward Equity Act

Proposed features:

• $25,000 in down payment assistance
• Targeted toward first-generation homebuyers
• As of January 2026, not enacted into law

Note: These are proposals, not current law. Check IRS.gov for enacted tax benefits.

Tax Benefits Timeline for First Time Buyers

Here's when you can claim various tax benefits:

At Purchase

• Apply for MCC with mortgage application
• Claim points deduction (year of purchase)
• Set up for future mortgage interest deduction

First Year of Ownership

• Claim MCC tax credit on tax return
• Deduct mortgage interest (if itemizing)
• Deduct property taxes (subject to SALT cap)
• Claim energy credits for any improvements

Ongoing Years

• Continue claiming MCC credit annually
• Continue mortgage interest deduction
• Continue property tax deduction
• Claim credits for additional energy improvements

Maximizing Your Tax Benefits

Should You Itemize?

Tax deductions for first-time homebuyers can provide significant savings for first-time homebuyers. You may be able to deduct various expenses, but your itemized deductions must exceed the standard deduction. The credit amount and credit based on your situation varies:

• 2026 Standard Deduction (estimated): $15,000 single, $30,000 married filing jointly
• Itemize if: Mortgage interest + property taxes (capped) + other deductions > standard deduction

Many first time buyers in lower-cost areas won't benefit from itemizing. This makes MCCs even more valuable since they're tax credits, not deductions.

Stacking Benefits

Maximize your tax savings by combining:

1. MCC: Get the annual tax credit
2. Mortgage interest deduction: Deduct remaining interest if itemizing
3. Property tax deduction: Within SALT limits
4. Energy credits: For any efficiency improvements
5. Home office: If self-employed and qualifying

First Time Home Buyer Tax Credits FAQs

Is there a federal first time home buyer tax credit in 2026?

There is no direct federal first time home buyer tax credit as of 2026. The original credit expired in 2010. However, Mortgage Credit Certificates (MCCs) provide annual federal tax credits for eligible first time buyers, and other deductions remain available. Various proposals for new credits have been introduced but not enacted as of January 2026.

What is a Mortgage Credit Certificate (MCC)?

An MCC is a tax credit certificate issued by state housing finance agencies that allows first time home buyers to claim a federal tax credit for a portion (typically 20-30%) of mortgage interest paid each year. Unlike a deduction, this credit directly reduces your tax bill dollar-for-dollar. MCCs remain valid for the life of your mortgage as long as you stay in the home.

How much can I save with an MCC?

MCC savings depend on your mortgage amount, interest rate, and state's credit rate. Most states cap the credit at $2,000 per year for credit rates above 20%. On a $300,000 mortgage at 6.5%, you'd typically get the maximum $2,000 annual credit. Over 10 years, that's $20,000 in direct tax savings, plus you can still deduct the remaining mortgage interest.

Can I deduct mortgage interest as a first time buyer?

Yes, all homeowners, not just first time buyers, can deduct mortgage interest on federal taxes. The interest must be on a mortgage secured by your main home or a second home, and the deduction is limited to interest on up to $750,000 of mortgage debt. However, you must itemize deductions to benefit; many taxpayers don't itemize because the standard deduction is higher.

What are the income limits for MCCs?

MCC income limits are set by each state and typically range from 100-115% of Area Median Income (AMI). Limits vary significantly by location and household size. In high-cost areas, you might qualify with income over $150,000. Check your state housing finance agency for specific limits in your area.

Can I use both an MCC and deduct mortgage interest?

Yes! If you have an MCC, you claim the tax credit for the portion of interest covered by your MCC rate, then deduct the remaining mortgage interest as an itemized deduction. For example, with a 25% MCC rate on $20,000 in interest, you'd get a credit on $5,000 (capped at $2,000) and deduct the remaining $18,000.

Can I withdraw from my IRA for a first home?

Yes, first time home buyers can withdraw up to $10,000 from a traditional IRA without the 10% early withdrawal penalty. You'll still owe income tax on the withdrawal. Roth IRA contributions can always be withdrawn tax-free, and up to $10,000 in earnings can be withdrawn penalty-free for a first home (tax-free if the account is 5+ years old). The "first time buyer" definition here is not owning a home in the past 2 years.

What records should I keep for tax benefits?

Keep records of: your MCC certificate, Form 1098 (Mortgage Interest Statement) from your lender, property tax receipts, closing disclosure showing points paid, receipts for any energy-efficient improvements, and documentation of home office space if applicable. Keep these records for at least 3 years after filing, longer if you might be audited.

Summary: Tax Benefits for First Time Home Buyers

While there's no active federal first time home buyer tax credit, significant tax benefits remain available:

• Mortgage Credit Certificates: Up to $2,000+ annually in federal tax credits, the closest thing to the old first time buyer credit
• Mortgage interest deduction: Deduct interest on up to $750,000 in mortgage debt (if itemizing)
• Property tax deduction: Deduct up to $10,000 in SALT (if itemizing)
• Points deduction: Deduct discount points in the year of purchase
• IRA exception: Access up to $10,000 from IRAs without early withdrawal penalty
• Energy credits: 30% credits for solar, heat pumps, and efficiency improvements
• State credits: Some states offer additional first time buyer credits

The most important action: apply for an MCC when getting your mortgage. It's free money that most first time buyers miss out on.