First-Time Homebuyer Tax Credits and Incentives

Buying your first home comes with major financial decisions, and understanding available tax credits and incentives can make a meaningful difference. While federal programs have changed over the years, there are still several tax benefits and assistance options that can help reduce the cost of homeownership in 2026. Whether you’re buying a home in Denver or a house in Orlando, this Redfin real estate guide breaks down what first-time buyers need to know about available tax credits and incentives in 2026.

What qualifies you as a first-time homebuyer?

For most programs, you are considered a first-time homebuyer if you have not owned a primary residence in the past three years. This definition applies to many state and local assistance programs, as well as certain federal-backed options.

You may still qualify even if you owned property in the past, as long as you have not owned a home recently.

Tax benefits available to first-time buyers

While there is no active federal first-time homebuyer tax credit in 2026, homeownership still comes with several tax advantages. Understanding how these deductions and credits work can help you estimate potential savings and make a more informed financial decision before you buy.

“Prospective buyers should inquire what exemptions or dedication the sellers are receiving and get an estimate of what their taxes would be,” says Lisa Miura, real property tax administrator at the County of Hawai’i. “There are other programs available if the buyer is not intending to reside on the property including agricultural and long term rental.”

Mortgage interest deduction

Homeowners who itemize deductions may deduct mortgage interest paid on qualified home loans, subject to IRS limits. This can reduce taxable income, especially in the early years of a mortgage when interest payments are higher.

Property tax deduction

You may deduct state and local property taxes, subject to the current federal cap on state and local tax deductions.

Mortgage Credit Certificates

Some state and local housing finance agencies offer Mortgage Credit Certificates, often called MCCs. These allow eligible buyers to convert a portion of their annual mortgage interest into a dollar-for-dollar federal tax credit, up to a capped amount. This can provide ongoing annual tax savings for qualified homeowners.

“Buyers need to contact their state housing finance agency before signing a purchase contract to confirm MCC availability and reserve the certificate,” says Mike Habib, EA. “If you close without securing it, the federal credit is permanently lost for that home. It is also important to run the numbers to see whether itemizing makes sense and to keep a complete closing file with your MCC certificate, Closing Disclosure, and Form 1098. Most of the problems I see could have been avoided with a brief conversation before closing rather than after the tax return is filed.”  

State and local first-time homebuyer incentives

While federal credits are not currently available, many state and local governments offer financial assistance programs designed specifically for first-time buyers.

These programs may include:

• Down payment assistance grants
• Forgivable loans
• Low-interest second mortgages
• Closing cost assistance
• State-level tax credits

Eligibility often depends on income limits, purchase price limits, and whether the home is located in a targeted area.

Because programs vary widely by state and city, buyers should check with their state housing finance agency or local housing department to review available options.

First-time homebuyer programs in Canada

“Many first-time buyers assume all homebuyer programs work the same way, but the rules can differ significantly,” says Clayton Achen, CPA and managing partner at Achen Henderson CPAs.  “For example, the First Home Savings Account and the Home Buyers’ Plan are often confused, even though FHSA withdrawals can generally be tax-free without repayment, while HBP withdrawals from an RRSP generally must be repaid over time. Buyers also frequently overlook timing requirements and assume that qualifying for one program automatically means they qualify for others.” 

“A common issue is that eligibility rules vary from program to program, especially around the definition of a first-time home buyer. Income limits, purchase price thresholds, occupancy requirements, and documentation can all affect access to credits, rebates, or incentive programs. In practice, buyers are often disqualified because they misunderstand prior home ownership rules, they miss filing deadlines, or they fail to keep the records needed to support their claim,” Achen explains.

Other programs that reduce upfront costs

Although not technically tax credits, these programs can significantly reduce the cost of buying your first home:

• FHA loans with lower down payment requirements
• VA loans for eligible service members and veterans
• USDA loans for qualifying rural properties
• First-generation homebuyer assistance programs in some areas

Lower upfront costs can make homeownership more accessible and improve overall financial flexibility.

How to maximize your savings

If you are planning to buy your first home in 2026, consider these steps:

1. Review your tax situation with a CPA or tax professional before purchasing.
2. Ask lenders about Mortgage Credit Certificates and local assistance programs.
3. Research state and city housing programs early, as some require pre-approval or homebuyer education courses.
4. Compare the long-term tax benefits of owning with the costs of renting in your area.

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