First-time home buyers in 2026 have access to several meaningful tax benefits — but most buyers either don't know they exist or claim them incorrectly. The mortgage interest deduction alone can save you $3,000–$7,000 per year in the early years of your loan, and state-specific credits can put $2,000–$10,000 directly back in your pocket. Here's every tax benefit available to you, how to qualify, and how to claim each one.
The mortgage interest deduction lets you deduct the interest paid on up to $750,000 of mortgage debt ($375,000 if married filing separately) on your primary residence and one additional home. In the first year of a $350,000 mortgage at 6.5%, you'll pay approximately $22,600 in interest — all of which is deductible if you itemize.
Here's the catch: you must itemize deductions on Schedule A to benefit. The 2026 standard deduction is $14,600 for single filers and $29,200 for married filing jointly. If your total itemized deductions (mortgage interest + property taxes + state/local taxes + charitable contributions) don't exceed the standard deduction, you get no additional tax benefit from your mortgage interest.
For a single filer with a $350,000 mortgage at 6.5%, here's the rough math: $22,600 mortgage interest + $5,000 property taxes + $2,000 charitable donations = $29,600 in itemized deductions versus the $14,600 standard deduction. You'd save taxes on the additional $15,000, which at a 22% marginal rate saves about $3,300.
For married filing jointly, the math is tighter: the same $29,600 in itemized deductions barely exceeds the $29,200 standard deduction, saving you only $88 in taxes. This is why many married couples with moderate mortgages don't actually benefit from the mortgage interest deduction — the standard deduction is too generous. Couples with larger mortgages ($400,000+), high state income taxes, and significant charitable giving benefit the most.
You can deduct state and local taxes (SALT) — including property taxes, state income taxes, or state sales taxes — up to a combined cap of $10,000 per year ($5,000 if married filing separately). This cap was established by the Tax Cuts and Jobs Act in 2017 and remains in effect through 2026.
For most homeowners, property taxes are the largest SALT component. If you pay $6,000 in property taxes and $5,000 in state income taxes, you hit the $10,000 cap and the extra $1,000 provides no additional deduction. In high-tax states like New Jersey (average property tax $9,100), New York ($8,500), and Connecticut ($7,400), homeowners easily exceed the SALT cap, reducing the tax benefit of homeownership.
Despite the cap, the SALT deduction still provides meaningful savings if you're in a state with moderate property taxes and moderate income taxes. At a 24% marginal tax rate, the full $10,000 SALT deduction saves $2,400 per year.
If you paid discount points at closing to buy down your interest rate, those points are fully deductible in the year of purchase on your primary residence. One point on a $300,000 loan costs $3,000 and typically reduces your rate by 0.25%. That $3,000 is deducted on your tax return for the year you closed — not amortized over the life of the loan (as long as it's for a purchase, not a refinance).
This is a powerful first-year benefit. If you paid two points ($6,000) to get a significantly lower rate, that $6,000 deduction at a 24% tax rate saves you $1,440 on your taxes. Combined with mortgage interest and property taxes, points can push your total itemized deductions well above the standard deduction threshold.
For refinances, the rules are different: points paid on a refinance must be amortized over the life of the new loan. If you paid $3,000 in points on a 30-year refinance, you deduct $100 per year for 30 years. The exception: if you refinance again, you can deduct the remaining unamortized points from the previous refinance in that year.
You can withdraw up to $10,000 from a traditional IRA penalty-free for a first-time home purchase. You still owe income tax on the withdrawal (it's only the 10% early withdrawal penalty that's waived), but avoiding the penalty saves $1,000 on a $10,000 withdrawal.
"First-time home buyer" has a generous definition here: anyone who hasn't owned a principal residence in the past two years qualifies. If you owned a home, sold it three years ago, and have been renting since, you qualify again.
The $10,000 limit is per person, not per couple. If you and your spouse both have traditional IRAs, you can each withdraw $10,000 penalty-free — $20,000 total for the home purchase. The funds must be used within 120 days for acquisition costs (down payment, closing costs, etc.).
For Roth IRAs, the rules are more favorable. You can always withdraw your contributions (not earnings) tax-free and penalty-free at any time, for any reason. For earnings, you can withdraw up to $10,000 penalty-free for a first-time home purchase if the Roth account has been open for at least five years. If the account has been open less than five years, the $10,000 in earnings is penalty-free but subject to income tax.
Many states offer their own tax credits for first-time home buyers, separate from federal benefits. Unlike deductions (which reduce taxable income), credits reduce your tax bill dollar-for-dollar. A $2,000 state tax credit saves you $2,000 in taxes — not $2,000 times your marginal rate.
Examples of state programs in 2026: New York offers a credit of up to $5,000 for qualifying first-time buyers. Maryland provides up to $5,000 through its HomeCredit program. Pennsylvania's first-time buyer credit can reach $2,000–$5,000 depending on the county. Minnesota offers a credit of up to $2,000 for qualifying first-time buyers. Oregon, Missouri, and several other states have similar programs with varying amounts and income limits.
Eligibility requirements vary by state but typically include: first-time buyer status (no ownership in 3 years), income limits (often 80–120% of area median income), purchase price limits, and completion of a homebuyer education course. Check your state housing finance agency's website for current program details. Our state guides at /states cover first-time buyer programs for all 50 states.
An MCC is one of the most valuable and least known tax benefits for first-time buyers. Issued by state or local housing finance agencies, an MCC allows you to claim a federal tax credit equal to a percentage (typically 20–40%) of the mortgage interest you pay each year, up to a $2,000 annual credit.
Here's how it works: on a $300,000 mortgage at 6.5%, you pay approximately $19,400 in interest in year one. With a 20% MCC, you get a $2,000 federal tax credit (20% of $19,400 = $3,880, capped at $2,000). This is a credit, not a deduction — it reduces your tax bill by a full $2,000. You still deduct the remaining 80% of mortgage interest ($15,520) as a standard mortgage interest deduction.
The MCC lasts for the life of the loan, as long as you live in the home. Over 10 years, that's $20,000 in tax credits. Over 30 years, even more — though the credit decreases as the interest portion of your payment shrinks with amortization.
Eligibility: typically first-time buyers (no ownership in 3 years), income and purchase price limits that vary by county, and the home must be your primary residence. You must apply through an MCC-approved lender before closing. You cannot retroactively apply for an MCC after you've already closed on the home.
Mortgage interest and property tax deductions: file Schedule A (Itemized Deductions) with your Form 1040. Your lender sends you Form 1098 in January showing the interest and points paid. Only itemize if your total itemized deductions exceed the standard deduction.
IRA first-time buyer withdrawal: when you take the distribution, your IRA custodian reports it on Form 1099-R. On your tax return, you'll use Form 5329 to claim the first-time homebuyer exception to the 10% penalty (Exception 09). The withdrawal is still reported as taxable income on your 1040.
State tax credits: filing procedures vary by state. Most require attaching a state-specific form to your state return and providing proof of purchase (closing disclosure, deed). Check your state's department of revenue website for the exact form number.
Mortgage Credit Certificate: claim on Form 8396 (Mortgage Interest Credit) attached to your federal Form 1040. You must have the MCC issued by your state housing finance agency — the certificate number goes on the form. The credit directly reduces your federal tax.
Itemizing when the standard deduction is higher: many new homeowners assume they should itemize because they have a mortgage. Run the numbers both ways — TurboTax and other software do this automatically. If itemizing saves you $50 but the standard deduction saves you more in simplicity and audit risk, take the standard deduction.
Double-counting the MCC and the interest deduction: if you have an MCC, you cannot deduct the portion of interest claimed as a credit. If your MCC rate is 20%, you deduct only 80% of your mortgage interest on Schedule A.
Missing the IRA deadline: the $10,000 withdrawal must be used within 120 days for the purchase. If your closing gets delayed beyond 120 days, you may need to redeposit and re-withdraw.
Forgetting to claim points: many first-time buyers don't realize their points are deductible. Check your closing disclosure for any amounts labeled as "discount points" or "loan discount" — these are deductible in the purchase year.
Use our affordability calculator at /affordability-calculator to understand your total buying power, and browse our state pages at /states for state-specific first-time buyer programs. If you're considering an FHA loan (common for first-time buyers), our FHA loan calculator at /tools/fha-loan-calculator shows you the exact monthly payment including upfront and annual MIP.