Buying your first home can unlock powerful financial benefits — and we’re not just talking about equity. There are real tax advantages designed to make homeownership more affordable, especially for first-time buyers.
Understanding these credits and deductions can help you reduce your tax bill, increase your refund, and lower your total cost of homeownership.
Are There Still Tax Credits for First-Time Homebuyers?
While the federal first-time homebuyer tax credit introduced in 2008 expired years ago, some states and local governments still offer their own versions. These credits often reduce the buyer’s tax liability in the year of purchase — sometimes by thousands of dollars.
Examples of State-Level Credits
- Mortgage Credit Certificates (MCCs)
- State-specific buyer tax incentives
- Property tax exemptions or freezes for new homeowners
Check with your state’s housing agency or contact Bootcamp For Buyers to learn what’s available in your area.
Mortgage Interest Deduction
This is the most well-known tax benefit of homeownership. You may be able to deduct the interest paid on up to $750,000 of mortgage debt if you itemize your deductions.
For first-time buyers, this deduction can mean hundreds to thousands of dollars in tax savings every year — especially during the early years of your mortgage when interest makes up a large part of your payment.
Property Tax Deduction
You can typically deduct up to $10,000 in property taxes paid in a given year. This applies whether the taxes are paid through escrow or directly to the county.
Tip: Make sure your lender provides a year-end escrow statement to help track this.
Mortgage Insurance Premiums (MIP and PMI)
If you’re paying private mortgage insurance (PMI) on a conventional loan or mortgage insurance premiums (MIP) on an FHA loan, you may be eligible to deduct those premiums on your taxes, depending on your income and current legislation.
While this deduction has phased in and out of eligibility over recent years, it’s still worth checking each year at tax time.
Home Office Deductions (For Self-Employed Buyers)
If you work from home and are self-employed (not a W-2 employee), you may qualify for the home office deduction. You can deduct a portion of your:
- Mortgage interest
- Home insurance
- Utilities
- Repairs and maintenance
Eligibility depends on using a dedicated space exclusively and regularly for business.
Energy Efficiency Tax Credits
Did you install solar panels, energy-efficient HVAC, or new windows after buying your home? You could be eligible for federal and state tax credits under the Energy Efficient Home Improvement Credit.
- Up to 30% of installation costs for qualified solar systems
- Up to $3,200 in annual credits for other improvements
This is especially important if you're improving your new home in the first year or two after purchase.
Moving Expenses (In Limited Cases)
Moving expense deductions were largely eliminated for most taxpayers — but members of the U.S. Armed Forces may still qualify for certain moving expense deductions when relocating due to a change of station.
What About Closing Costs?
Most closing costs are not deductible — but a few can be:
- Mortgage points (if you paid them upfront to lower your interest rate)
- Property taxes paid at closing
- Prepaid mortgage interest
These deductions often appear on your Closing Disclosure (CD) from your lender, so be sure to keep this document.
How to Maximize Tax Savings
- Keep Records: Save all closing docs, year-end lender statements, and receipts for improvements.
- Work with a Tax Pro: Especially in your first year of ownership, a good CPA can help you maximize every deduction.
- Use IRS Form 1098: Your lender should send this form to document your mortgage interest paid.
Tip: Even if you take the standard deduction now, tax law changes could make itemizing more favorable in future years.
Conclusion: Homeownership Pays Off at Tax Time
Buying your first home isn’t just a lifestyle upgrade — it’s a smart financial move when you understand the tax breaks that come with it. From interest and insurance deductions to credits for energy upgrades, there are real, lasting savings available to you.