What tax credits are actually available for homebuyers
The federal government does not offer a general tax credit for buying a house. There is no deduction for the down payment, closing costs, or the purchase price itself. However, two narrow credits do exist: the First-Time Homebuyer Credit (which ended in 2010 and is not available now) and the Residential Energy Efficient Property Credit, which applies only to specific energy-saving improvements you make after you buy.
What you may be confusing with a credit is the mortgage interest deduction, which is not a credit but a deduction. It reduces your taxable income if you itemize deductions, but only for mortgage interest on loans up to $750,000 (or $1 million if you bought before December 16, 2017). This is available every year you own the home, not just when you buy it.
State and local governments sometimes offer their own first-time buyer credits or down payment information programs, but these vary widely by location and are not federal tax credits. Some are forgivable loans rather than credits.
Key Takeaways
- No federal tax credit exists for the act of buying a house or for your down payment and closing costs.
- The mortgage interest deduction reduces your taxable income each year you own the home, but only if you itemize deductions and your loan is $750,000 or less.
- The Residential Energy Efficient Property Credit covers only specific upgrades like solar panels or heat pumps installed after purchase, not the home itself.
- Some states and cities offer first-time buyer credits or information programs, which you should research through your state housing finance agency.
The mortgage interest deduction versus a tax credit
A deduction and a credit work differently. A deduction reduces the income you report to the IRS. A credit reduces the tax you owe dollar-for-dollar. Because of this, a $1,000 credit is worth more than a $1,000 deduction.
The mortgage interest deduction is valuable but only if you itemize deductions on Schedule A of your Form 1040. In 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. If your mortgage interest plus other deductible expenses (property taxes, charitable gifts, state income tax) do not exceed the standard deduction, you get no benefit from itemizing. Many homebuyers, especially those with smaller mortgages, come out ahead by taking the standard deduction instead.
You can only deduct interest on the mortgage itself, not on property taxes, homeowners insurance, HOA fees, or the principal you pay down. The IRS provides the interest amount on Form 1098 each January, which your lender sends to you and files with the IRS.
The Residential Energy Efficient Property Credit
If you install certain energy-saving equipment in your home after you buy it, you may be able to claim the Residential Energy Efficient Property Credit on Form 5695. This credit covers solar panels, solar water heaters, geothermal heat pumps, small wind turbines, and battery storage systems that store energy from solar or wind.
The credit is 30% of the cost of the equipment and installation, with no dollar limit. You claim it in the year the equipment is placed in service (meaning it is installed and ready to use). You do not have to itemize deductions to claim this credit, and it can carry forward to future years if you cannot use the full amount in one year.
This credit applies only to the equipment itself and the labor to install it. It does not cover general home improvements, energy audits, or equipment that was already in the home when you bought it. If you buy a home with solar panels already installed, you cannot claim the credit for those panels.
State and local first-time buyer programs
Many states and cities offer down payment information, forgivable loans, or tax credits for first-time homebuyers. These are separate from federal tax law and vary by location. Some examples include grants that do not have to be repaid, loans with below-market interest rates, or credits against state income tax.
To find what your state offers, contact your state housing finance agency (search "[your state] housing finance agency") or ask your mortgage lender, who often has a list of programs for the area where you are buying. Some programs are income-limited, some require you to take a homebuyer education course, and some are available only in certain counties or for certain property types.
These programs are not tax credits in the federal sense, but they reduce your out-of-pocket cost at closing or over time. If a program is a forgivable loan, the forgiven amount may be taxable income in the year it is forgiven, so ask the program administrator about the tax treatment before you accept the funds.
What you can deduct when you own a home
Once you own the home, you can deduct mortgage interest (as discussed above) and property taxes, but only if you itemize. The property tax deduction is capped at $10,000 per year ($5,000 if married filing separately) under federal law. This cap applies to all state and local taxes combined—income tax, sales tax, and property tax together.
You cannot deduct homeowners insurance, HOA fees, utilities, maintenance, repairs, or improvements. If you use part of your home for business (a home office, rental room, or studio), you may be able to deduct a portion of utilities, insurance, and depreciation, but this requires careful record-keeping and can trigger capital gains tax when you sell. Consult a tax professional before claiming a home office deduction.
Selling the home: the capital gains exclusion
When you sell your home, you may be able to exclude up to $250,000 of gain from your taxable income (or $500,000 if married filing jointly). This is not a credit but an exclusion, and it applies only if you owned and lived in the home for at least two of the five years before the sale.
This exclusion is one of the most valuable tax benefits of homeownership, but it is not available when you buy—only when you sell. If you buy a home for $300,000 and sell it for $550,000, your gain is $250,000. As a single filer, you exclude all of it. As a married couple, you exclude $500,000, so if your gain were $600,000, you would owe tax on only $100,000 of gain.
When to talk to a tax professional
If you have a large mortgage, own rental property, or are considering a home office deduction, a tax professional can model whether itemizing deductions makes sense for you. They can also advise on the tax treatment of any state or local information programs you receive.
If you are buying a home with energy-efficient equipment already installed, or if you plan to install solar panels or a heat pump, ask a tax professional whether you can claim the Residential Energy Efficient Property Credit and in which year. The timing of installation and the type of equipment matter.
Frequently Asked Questions
Can I deduct my down payment or closing costs?
No. Your down payment is not deductible—it is part of your investment in the home. Closing costs are also not deductible in the year you buy. However, some closing costs (such as points paid to lower your interest rate) can be deducted or amortized over the life of the loan. Ask your lender which costs may have access to.
Do I have to itemize to deduct mortgage interest?
Yes. Mortgage interest is only deductible if you itemize deductions on Schedule A. If your itemized deductions are less than the standard deduction ($14,600 single, $29,200 married filing jointly in 2024), you will take the standard deduction instead and get no benefit from the mortgage interest.
What if I bought my home before 2010—can I claim the First-Time Homebuyer Credit?
The First-Time Homebuyer Credit ended in 2010. If you bought in 2008 or 2009, you may have already claimed it. You cannot claim it now, even if you did not claim it then. The IRS has a statute of limitations, so you cannot amend a return from that year without professional guidance.
Does buying a house reduce my taxes?
Only if you itemize deductions and your mortgage interest plus property taxes and other deductible expenses exceed the standard deduction. For many homebuyers, especially those with smaller mortgages or in low-tax states, the standard deduction is larger, so homeownership provides no tax benefit. The main tax benefit comes when you sell and exclude capital gains.
Can I claim a credit for energy-efficient improvements I made before I bought the house?
No. The Residential Energy Efficient Property Credit applies only to improvements you make after you own the home. Equipment that was already installed when you bought it does not may have access to, even if you paid for it as part of the purchase price.