What tax credits are available to homebuyers
The main federal tax credit for homebuyers is the First-Time Homebuyer Credit, but it is no longer available for most purchases. That credit expired at the end of 2009 and was not renewed. If you bought your house after 2009, you cannot claim it on your taxes.
However, you may be able to claim other tax benefits related to homeownership — though these are not credits for buying the house itself, but rather deductions and credits tied to the costs of owning it. The difference matters: a credit reduces your tax bill dollar-for-dollar, while a deduction reduces the income you pay tax on.
The most common homeowner tax benefit is the mortgage interest deduction, which lets you deduct the interest you paid on your mortgage during the year. You can also deduct property taxes you paid. These are deductions, not credits, and they only help if you itemize deductions on your tax return rather than taking the standard deduction.
Key Takeaways
- The federal First-Time Homebuyer Credit ended in 2009 and does not apply to homes bought after that year.
- You may deduct mortgage interest and property taxes on your federal tax return if you itemize deductions.
- Some states and cities offer their own tax credits or deductions for first-time homebuyers, so check your local tax authority's website.
- Energy-efficient home improvements may may have access to for a federal tax credit, separate from the purchase itself.
- The mortgage interest deduction only benefits you if your total itemized deductions exceed the standard deduction for your filing status.
Mortgage interest and property tax deductions
If you itemize deductions on your federal tax return, you can deduct the interest portion of your mortgage payments. In the early years of a 30-year mortgage, most of your payment goes toward interest rather than principal, so this deduction can be substantial. You will receive a Form 1098 from your lender each January showing how much interest you paid the previous year.
You can also deduct property taxes you paid to your state and local government. Combined with mortgage interest, these two deductions often add up to more than the standard deduction, which is why many homeowners choose to itemize. However, there is a cap: the total of state and local taxes (including property tax) you can deduct is limited to $10,000 per year under current federal law.
To benefit from these deductions, 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 other deductible expenses do not exceed that amount, you will be better off taking the standard deduction instead.
State and local homebuyer tax credits
Several states and some cities offer their own tax credits or deductions for first-time homebuyers. These vary widely by location and change from year to year. Some states offer a one-time credit based on the purchase price; others offer an annual deduction similar to the federal mortgage interest deduction.
To find out whether your state or city has a homebuyer tax credit, contact your state's department of revenue or visit its tax authority website. You can also ask your real estate agent or mortgage lender, as they often know which local credits are currently available. If a credit exists, you will typically claim it on your state income tax return, not your federal return.
Energy-efficient home improvement credits
If you make energy-efficient improvements to your home after you buy it — such as installing solar panels, a heat pump, or an energy-efficient water heater — you may be able to claim a federal tax credit for those improvements. This is not a credit for buying the house, but for the upgrades you make to it.
The Residential Energy Credit allows you to claim a percentage of the cost of certain energy-efficient improvements. The credit amount and which improvements may have access to can change, so check the IRS website or speak with a tax professional before making improvements if you plan to claim the credit.
How to know if you should itemize deductions
Whether itemizing makes sense depends on your total deductible expenses. Add up your mortgage interest, property taxes (capped at $10,000), charitable donations, medical expenses above a certain threshold, and any other deductions you are may have access to to claim. If that total exceeds the standard deduction for your filing status, itemizing will save you money.
Many new homeowners find that itemizing makes sense in their first year or two, when they have paid the most interest. As years pass and the principal portion of your payment grows, the interest portion shrinks, and itemizing may no longer be worthwhile. A tax professional can help you run the numbers for your specific situation.
What the First-Time Homebuyer Credit was
The First-Time Homebuyer Credit was a federal tax credit that ran from 2008 to 2009. It allowed first-time buyers to claim a credit of up to $8,000 on their federal tax return in the year they bought their home. The credit was designed to stimulate home purchases during the financial crisis.
If you purchased a home in 2008 or 2009 and did not claim this credit at the time, you may still be able to claim it on an amended return. However, if you bought after 2009, this credit does not apply to you. Do not confuse this expired federal credit with state or local credits that may still be available.
Frequently Asked Questions
Can I claim a tax credit just for buying a house in 2024?
No. The federal First-Time Homebuyer Credit expired in 2009. However, you may be able to deduct mortgage interest and property taxes on your federal return, and your state or city may offer its own homebuyer credit. Check with your state tax authority to see what is available where you live.
Is the mortgage interest deduction the same as a tax credit?
No. A deduction reduces your taxable income; a credit reduces your tax bill directly. The mortgage interest deduction only helps if you itemize deductions and if your total deductions exceed the standard deduction. A tax credit would reduce your actual tax owed dollar-for-dollar.
Do I have to itemize to benefit from homeownership?
Not necessarily. If your itemized deductions do not exceed the standard deduction, you will not benefit from the mortgage interest deduction. However, you may still benefit from other homeowner tax advantages, such as excluding capital gains when you sell, or from state-level credits.
What if I bought my house in 2008 or 2009?
You may be able to claim the First-Time Homebuyer Credit on an amended tax return if you did not claim it when you originally filed. Contact a tax professional or the IRS to determine whether you are still within the time limit to amend your return.
Can I claim a credit for energy improvements I make after buying?
Yes. The Residential Energy Credit allows you to claim a percentage of the cost of certain energy-efficient improvements like solar panels or heat pumps. This is separate from any credit for the purchase itself and is claimed in the year you make the improvement.