Claiming first-time home buyer status on your taxes does not get you a federal tax credit in 2026, because the $8,000 credit from the Recovery Act era expired after mid-2010 and Congress has not replaced it.1Internal Revenue Service. Tax Credits for Home Buyers FS-2010-6 What first-time buyer status still does is unlock a penalty-free retirement account withdrawal of up to $10,000. Everything else worth claiming as a new homeowner, from the mortgage interest deduction to a Mortgage Credit Certificate, is available to any homeowner who qualifies, regardless of whether it’s your first house or your fourth.
So the real question is which tax benefits apply to your situation, and which forms carry them onto your return.
The Old $8,000 Credit Is Gone
The refundable credit many buyers still ask about was equal to 10 percent of a home’s purchase price, capped at $8,000 for most filers and $4,000 for married filing separately.1Internal Revenue Service. Tax Credits for Home Buyers FS-2010-6 It required a binding contract by April 30, 2010, and a closing by June 30, 2010.2U.S. Department of the Treasury. Thirty Days and Counting – Treasury Reminds Potential Homebuyers of Deadline on Recovery Act Expanded Tax Credit Purchases after those dates do not qualify, and while bills proposing a new credit surface regularly in Congress, none have become law.
Who the IRS Treats as a First-Time Buyer
Even without the old credit, the federal definition still matters. You count as a first-time buyer if neither you nor your spouse held an ownership interest in a principal residence during the three years ending on the purchase date of your new home.3Office of the Law Revision Counsel. 26 USC 36 – First-Time Homebuyer Credit – Section: Definitions Someone who owned a home years ago but has been renting since can regain the status.
Where this label actually pays off is narrow. It unlocks a penalty-free IRA withdrawal, and it opens the door to state and local homebuyer programs that borrow the federal definition. The two biggest ongoing tax benefits of owning a home, the mortgage interest deduction and the property tax deduction, do not require first-time buyer status at all.
The $10,000 Penalty-Free IRA Withdrawal
If you meet the definition, you can pull up to $10,000 from a traditional IRA to put toward a home purchase without paying the usual 10 percent early-withdrawal penalty. The $10,000 is a lifetime cap per person, set in 1997 and never adjusted for inflation.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions A married couple where both spouses qualify can withdraw $10,000 each.
Two things trip people up. The exception applies only to IRAs, not to 401(k)s, 403(b)s, or other employer plans.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Pulling $10,000 from a 401(k) for a down payment triggers the full 10 percent penalty. And while the penalty is waived, the money coming out of a traditional IRA is still ordinary income for the year. Roth contributions can always come out tax-free and penalty-free because you already paid tax on them going in; the $10,000 exception only becomes relevant for a Roth if you’re reaching into earnings.
The Mortgage Interest Deduction
The biggest ongoing tax benefit for most homeowners is the deduction for mortgage interest. You can deduct interest paid on up to $750,000 of mortgage debt used to buy, build, or substantially improve your primary or secondary residence, or $375,000 if married filing separately. Mortgages taken out on or before December 15, 2017, keep a legacy limit of $1 million.5Office of the Law Revision Counsel. 26 USC 163 – Interest
You only benefit if you itemize. For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Including Amendments From the One Big Beautiful Bill Itemizing only helps if your mortgage interest, property taxes, charitable donations, and other deductible expenses together exceed that figure. On a $400,000 mortgage at 7 percent, first-year interest alone is roughly $28,000, so a married couple can clear the threshold once property taxes and giving are added in.
The deduction is front-loaded. Early in a mortgage, most of your payment is interest, and the write-off is at its largest. Late in a 30-year loan, when principal dominates, the standard deduction often wins.
Mortgage Credit Certificates
A Mortgage Credit Certificate, or MCC, is the closest thing to a direct federal homebuyer credit still on the books. Unlike a deduction, which lowers your taxable income, the MCC cuts the tax you owe dollar for dollar. State and local housing finance agencies issue them to buyers who meet income and purchase price limits, and the federal benefit is authorized under 26 U.S.C. § 25.7Office of the Law Revision Counsel. 26 USC 25 – Interest on Certain Home Mortgages
The certificate carries a credit rate somewhere between 10 and 50 percent. Multiply that rate by the mortgage interest you paid during the year to get your credit. If the rate is above 20 percent, the annual credit is capped at $2,000; at 20 percent or below, there’s no dollar cap beyond the calculation itself.8Internal Revenue Service. Form 8396 – Mortgage Interest Credit Claim it on Form 8396, and reduce your Schedule A mortgage interest deduction by the credit amount so the same interest doesn’t get counted twice.
One thing to know before signing up: selling within nine years, at a profit, with income that has climbed well above the qualifying limits in place when you got the certificate can trigger a federal recapture tax under 26 U.S.C. § 143(m). The recapture is the lesser of a calculated amount or 50 percent of the gain.9Office of the Law Revision Counsel. 26 USC 143 – Mortgage Revenue Bonds After nine years it no longer applies, and a sale at a loss never triggers it. Your issuing agency provides a recapture notice at closing.
Deducting Points Paid at Closing
Points, sometimes called discount points or origination fees, are upfront interest paid at closing to buy down your rate. One point equals one percent of the loan. If certain conditions are met, you can deduct the full cost of points in the year you bought the home rather than spreading them over the life of the loan.10Internal Revenue Service. Topic No 504 Home Mortgage Points
The loan must be for your primary residence, paying points must be a standard practice where you live, the charge must be in line with local norms, and you must have brought funds to closing at least equal to the points. Money borrowed from the same lender doesn’t count. If the seller paid the points, you still get the deduction, but you have to reduce your home’s cost basis by that amount. Points appear on your settlement statement. Points paid on a refinance generally have to be deducted across the life of the new loan instead of all at once.
Property Taxes and the SALT Cap
Property taxes on your primary and secondary residence are deductible on Schedule A, but they share space with the broader state and local tax cap. For 2026, that cap sits at $40,400 for most taxpayers, a large jump from the $10,000 limit that applied from 2018 through 2025. Very high earners face a phaseout that pulls the cap back toward $10,000.
The cap covers state income taxes (or sales taxes, if you elect that instead) plus property taxes together. In a high-income-tax state, a lot of the allowance gets eaten up before property taxes even enter the picture. In a state with no income tax, the whole $40,400 is available for property taxes. Either way, property taxes now contribute meaningfully to the itemization math in a way they couldn’t while the cap sat at $10,000.
The Capital Gains Exclusion When You Sell
The exclusion is not something you claim as a buyer, but it’s worth knowing about now because it shapes decisions later. When you sell your primary residence, you can exclude up to $250,000 of profit from your income if you’re single, or up to $500,000 if you’re married filing jointly.11Internal Revenue Service. Sale of Your Home
To qualify, you must have owned and used the home as your principal residence for at least two of the five years before the sale.12Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence For married couples filing jointly, only one spouse needs to meet the ownership test, though both must meet the use test. The two years don’t have to run back-to-back. Most homeowners in ordinary markets never owe federal tax on the gain at all.
State and Local Programs
State housing finance agencies run their own incentive programs, and these are often where the label “first-time buyer” pays off most. Common offerings include down payment assistance grants or forgivable loans, reduced-rate mortgages, and the MCCs described above. Some localities add property tax abatements for a set number of years or reduced transfer taxes at closing.
Eligibility usually turns on income, purchase price, and first-time buyer status, and most programs require you to apply and be approved before you close. Applying after the fact typically disqualifies you. Check your state agency’s current income charts and price caps, and read the terms on any subsidized financing carefully because moving or selling during a restricted period can require partial repayment.
Documents and Forms You Need
Your lender must send Form 1098, the Mortgage Interest Statement, by early February if you paid at least $600 in mortgage interest during the year.13Internal Revenue Service. Instructions for Form 1098 Box 1 shows total interest paid, and the form often reports points and escrowed property taxes as well. That’s the primary source document for the mortgage interest deduction.
Keep your Closing Disclosure too. It shows points paid at closing, prorated property taxes, and other settlement charges that may be deductible in the first year.14Consumer Financial Protection Bureau. What Is a HUD-1 Settlement Statement If you have a Mortgage Credit Certificate, hold onto the physical certificate. The certificate number and credit rate go on Form 8396 every year you claim the credit.8Internal Revenue Service. Form 8396 – Mortgage Interest Credit
Mortgage interest, deductible points, and property taxes all go on Schedule A. Total your itemized deductions and compare against the standard deduction for your filing status. If itemizing wins, attach Schedule A. If not, take the standard deduction; you can’t take both. The MCC credit is computed on Form 8396 and flows to your Form 1040, and remember to subtract the credit amount from the mortgage interest you claim on Schedule A. Tax software generally walks you through all of this by asking about the home purchase and loan.