What tax breaks exist for homebuyers

The main federal tax credit for buying a home is the First-Time Homebuyer Credit, but it is no longer available. That program ended in 2010. If you bought your home after that year, you cannot claim it, even if you are a first-time buyer now.

What you may be able to deduct instead are the mortgage interest and property taxes you paid during the year — but only if you itemize deductions on your tax return rather than taking the standard deduction. For most homebuyers, the standard deduction is larger, so the mortgage deduction saves you nothing.

Some states and cities offer their own homebuyer credits or deductions. These vary widely by location and change year to year. Your state tax authority's website will list what is available where you live.

Key Takeaways

  • The federal First-Time Homebuyer Credit expired in 2010 and is not available to anyone buying a home today.
  • You can deduct mortgage interest and property taxes only if you itemize deductions, which most homebuyers do not do because the standard deduction is larger.
  • State and local governments sometimes offer homebuyer credits or deductions that are separate from federal tax breaks.
  • The mortgage interest deduction applies only to the first $750,000 of mortgage debt (or $375,000 if married filing separately).

When the mortgage interest deduction actually saves you money

To benefit from deducting mortgage interest, your total itemized deductions must exceed the standard deduction for your filing status. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your mortgage interest plus property taxes plus charitable donations and other deductible expenses do not add up to more than that, you get no tax savings from the mortgage deduction.

A homebuyer with a $400,000 mortgage at 6.5 percent interest pays roughly $26,000 in interest the first year. Add $5,000 in property taxes, and you have $31,000 in deductions — enough to itemize if you are married filing jointly. A homebuyer with a smaller mortgage or a lower interest rate may not reach that threshold.

The deduction also phases out for high earners. If your modified adjusted gross income exceeds certain thresholds (currently $435,800 for married couples filing jointly), the deduction shrinks.

State and local homebuyer credits

Several states offer credits or deductions separate from the federal mortgage interest deduction. California does not have a homebuyer credit. New York offers a property tax credit for some homeowners, but it is based on income and property value, not on the act of buying. Illinois has no statewide homebuyer credit. Texas has no state income tax, so no state-level deduction is possible.

Some cities and counties offer down payment information or closing cost grants that reduce what you owe upfront, though these are not tax credits — they are direct financial help. Check your city or county assessor's website or contact your local housing authority to learn what programs exist in your area.

If you are a veteran, the VA home loan program offers a loan with no down payment and no mortgage insurance, which saves money at purchase time rather than at tax time. This is a loan benefit, not a tax credit.

What counts as deductible mortgage interest

You can deduct interest on up to $750,000 of mortgage debt ($375,000 if married filing separately). This limit applies to mortgages taken out after December 15, 2017. If you took out your mortgage before that date, the old limit of $1,000,000 still applies to you.

The interest must be on a loan secured by your home — a primary residence or a second home. Interest on a home equity line of credit (HELOC) or home equity loan is deductible only if you used the borrowed money to buy, build, or improve the home itself.

You cannot deduct points paid to lower your interest rate in the year you pay them if you are a cash-basis taxpayer (which most homebuyers are). Instead, you deduct them over the life of the loan. If you refinance, you can deduct the remaining points in the year of refinancing.

Property tax deductions and the SALT cap

You can deduct state and local property taxes as part of itemized deductions, but there is a $10,000 annual cap on all state and local taxes combined (property tax, income tax, and sales tax). This cap applies regardless of your income or filing status and is in effect through 2025.

If you live in a state with high property taxes — such as New Jersey, Illinois, or Connecticut — you may hit this cap quickly. Once you do, additional property taxes cannot be deducted. This cap was introduced in 2017 and is set to expire after 2025 unless Congress extends it.

How to claim these deductions on your tax return

To deduct mortgage interest, you will receive a Form 1098 from your lender by January 31 each year. This form shows how much interest you paid in the previous year. You report this amount on Schedule A (Itemized Deductions) when you file your federal return.

Property taxes are reported on the same Schedule A. You will need your property tax bill or assessment notice to find the amount you paid during the year.

If you use tax software such as TurboTax, H&R Block, or TaxAct, the software will walk you through whether itemizing makes sense for your situation. If you use a tax preparer, bring your Form 1098 and property tax documents with you.

Frequently Asked Questions

Can I deduct closing costs when I buy a home?

Most closing costs cannot be deducted. However, points paid to reduce your interest rate may be deductible over the life of the loan. Loan origination fees, appraisal fees, title insurance, and homeowners insurance are not deductible. Ask your lender which fees, if any, may have access to as deductible points.

What if I paid off my mortgage early — can I deduct the interest I did not pay?

No. You deduct only the interest you actually paid during the tax year. If you pay off your mortgage in year five, you deduct interest only for the years you owed the loan.

Does buying a home reduce my taxes if I do not itemize?

Not through a deduction. If you take the standard deduction instead of itemizing, the mortgage interest and property tax deductions do not lower your taxes. However, you may still benefit from lower property taxes or down payment information programs in your state or city.

Can I claim a tax credit for energy-efficient home improvements after I buy?

Yes. The Residential Energy Credit allows you to claim a credit (not a deduction) for certain energy-efficient upgrades such as solar panels, heat pumps, and insulation. This is separate from the homebuying process itself but applies after you own the home. Check the IRS website for current credit amounts and may have access to improvements.