Are there tax credits or deductions for first-time homebuyers in 2025?

While there is no federal first-time homebuyer tax credit currently available (the 2008-2010 credit expired), homeowners can access several significant tax deductions.

Mortgage interest deduction: You can deduct interest on up to $750,000 of mortgage debt ($375,000 MFS) on Schedule A. For a $400,000 mortgage at 7%, that is roughly $28,000 in deductible interest in the first year. This is only beneficial if your total itemized deductions exceed the standard deduction ($29,200 MFJ / $14,600 single for 2024).

State and local tax (SALT) deduction: Property taxes plus state/local income taxes are deductible up to a combined $10,000 ($5,000 MFS) on Schedule A. This cap was set by the TCJA and is in effect through 2025.

Mortgage points: Points paid to reduce your interest rate are deductible in the year paid if they meet certain requirements (paid on your primary residence purchase, within the normal range for your area). One point on a $400,000 mortgage is $4,000.

Home sale exclusion (future benefit): Once you have lived in the home as your primary residence for 2 of the 5 years before selling, you can exclude up to $250,000 ($500,000 MFJ) of capital gains from the sale. This is not a benefit at purchase but is worth planning for.

State programs: Many states offer first-time homebuyer programs including down payment assistance, mortgage credit certificates (MCCs), and favorable interest rates. MCCs let you claim a federal tax credit for a percentage of mortgage interest paid (typically 20-40%), and you can still deduct the remaining interest. Check your state housing finance authority.