First-time home buyer tax credits: What to know before you file

Written by Samantha SheltonNMLS 1647301Updated October 2026

There is no active federal first-time home buyer tax credit. The $15,000 figure circulating online comes from proposed legislation, the First-Time Homebuyer Tax Credit Act (H.R. 4717 and S. 2402) and the DASH Act (S. 4773), and none of those bills has been enacted.

New homeowners reviewing first-time home buyer tax credits and deductions at their kitchen table

What does exist is real. A Mortgage Credit Certificate converts a share of your annual mortgage interest into a dollar-for-dollar federal tax credit, 20% of it in Michigan, every year for the life of the loan, alongside the mortgage interest deduction on up to $750,000 of acquisition debt, a state and local tax deduction capped at $40,400 for 2026, and a mortgage insurance premium deduction that returns for tax years beginning after December 31, 2025.

Learn which first-time home buyer tax credits are actually law, which are still only bills, and how to claim what you qualify for, including the forms and deadlines. If you’re earlier in the process, start with our Home Buying guide and our First-Time Home Buyers hub.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Tax rules, dollar limits, and program terms change, and how they apply depends on your situation. Consult a qualified tax professional before you file.

Key takeaways:

No federal buyer credit exists today: The $15,000 credit people ask about lives in the First-Time Homebuyer Tax Credit Act, and that bill and the DASH Act are both sitting in committee rather than in law.
A Mortgage Credit Certificate is the closest real equivalent: Michigan’s MCC credits 20% of your annual mortgage interest against your federal tax bill, every year for the life of the original mortgage up to 30 years.
Credits beat deductions dollar for dollar: A $2,000 credit cuts your tax bill by $2,000, while a $2,000 deduction saves about $440 at a 22% rate, which is why the certificate is the one to ask your lender about before you close.

Is there a federal first-time home buyer tax credit right now?

No. As of October 2026, no federal tax credit exists for buying your first home. Two proposals would create one, the better-known of them capped at $15,000, and both are still bills that have to clear the House, clear the Senate, and get signed before a buyer could claim a dollar.

What the First-Time Homebuyer Tax Credit Act would do

H.R. 4717 would create a refundable credit equal to 10% of the purchase price, capped at $15,000, or $7,500 for a married person filing separately. Rep. Jimmy Panetta introduced it on July 23, 2025, and it went to the House Ways and Means Committee. A Senate companion, S. 2402, was introduced the same day by Sen. Sheldon Whitehouse and referred to the Finance Committee. Neither has had a floor vote.

Income and price limits: The credit would phase down once modified adjusted gross income passes 150% of the area median income, and again once the purchase price passes 110% of the area median purchase price.
Who would qualify: Someone with no present ownership interest in any residence during the 3-year period ending on the purchase date, who hasn’t taken the credit before.
Strings attached: The purchase would need federally backed financing, and selling inside the 4-year recapture window would claw back 25% of the credit for each remaining year.

What the DASH Act would do

The DASH Act carries its own first-time homebuyer refundable credit, in Title II of a much broader housing bill. Sen. Ron Wyden introduced the current version, S. 4773, on June 11, 2026, and the announcement the next day said it is written to make the credit advanceable, money at the closing table instead of at filing season. It, too, is a bill. It has not passed.

What happened to the last federal first-time buyer credit

The real one is long gone. The credit enacted during the 2008 housing crisis worked partly as an interest-free loan: 2008 buyers repaid it in 15 annual installments, and the IRS has confirmed the 2024 return was the last one that could carry Form 5405. There is no successor, so treat any pitch built around “the $15,000 first-time buyer credit” as a description of a bill. The money that is funded and open today is down payment assistance, see first-time home buyer grants and programs and state-specific mortgage assistance programs.

Tax credit vs. tax deduction: what’s the difference for homeowners?

A credit is worth several times what the same-size deduction is worth to a typical household, because a credit subtracts from the tax you owe while a deduction only subtracts from the income that tax is calculated on.

Run $2,000 through both. As a credit, it cuts your tax bill by the full $2,000. As a deduction at a 22% rate, the bracket that starts above $50,400 of taxable income for single filers and $100,800 for joint filers in 2026, it saves you $440.¹

Feature	Tax credit	Tax deduction
What it reduces	The tax you owe	The income you’re taxed on
Value of $2,000 at a 22% rate	$2,000	$440
Do you have to itemize?	No	Yes, for mortgage interest and property taxes
Homeowner example	Mortgage Credit Certificate (Form 8396)	Mortgage interest deduction (Schedule A)

That gap explains why a Mortgage Credit Certificate is worth chasing, and why the mortgage interest deduction disappoints so many first-time buyers: it only pays off if your itemized total clears the standard deduction.

What tax breaks can first-time home buyers actually claim today?

Six benefits are available under current law, and exactly one of them is a credit.

The mortgage interest deduction

You can deduct interest on up to $750,000 of home acquisition debt, $375,000 if married filing separately, on debt secured after December 15, 2017. Older debt keeps a $1 million ceiling. It lives on Schedule A, so it’s worth nothing unless you itemize. See the IRS rules for the mortgage interest deduction.

Property taxes, within the SALT cap

State and local income, sales, and property taxes are deductible up to a combined $40,400 for 2026, or $20,200 if married filing separately, up from $40,000 and $20,000 for 2025. The cap shrinks once modified adjusted gross income passes $505,000, but never drops below $10,000.

Points paid at closing

Discount points on a loan to buy your principal residence can generally be deducted in full in the year you pay them, if a set of IRS tests is met, among them that the charge is customary for your area, shows clearly as points on your settlement statement, and was covered by funds of your own at closing. Points on a refinance or second home are deducted ratably over the loan term. Our guide to closing costs and what to expect as a buyer shows where points sit on your Closing Disclosure.

A penalty-free IRA withdrawal

You can take up to $10,000 from a traditional or Roth IRA for a qualified first-home purchase without owing the 10% additional tax on early distributions, provided the money goes toward qualified acquisition costs within 120 days. It’s a lifetime limit, and it waives the penalty only, not income tax on a traditional IRA distribution. Weigh it against the alternatives in how to save for a down payment.

Mortgage insurance premiums, deductible again starting with 2026 returns

Premiums for qualified mortgage insurance are treated as deductible qualified residence interest for tax years beginning after December 31, 2025, so the 2026 return is the first one in five years that can carry them. Congress removed the sunset that had blocked the deduction for amounts paid after 2021, which is why the 2025 edition of IRS Publication 936 still says the deduction has expired, that publication covers 2025 returns, not 2026.

The catch is the income phase-out, and it is steep. The deductible amount drops 10% for every $1,000, $500 if married filing separately, that your adjusted gross income exceeds $100,000, or $50,000 if married filing separately, so it disappears entirely once AGI reaches $110,000. Like mortgage interest, it lives on Schedule A and does nothing unless you itemize. Ask your tax professional how it applies to your return.

Mortgage Credit Certificates

An MCC is the one true tax credit available to first-time buyers, and a state or local housing agency issues it, not the IRS. It converts a set percentage of your annual mortgage interest into a dollar-for-dollar federal credit, claimed on Form 8396 every year you hold the loan, and it’s generally issued only with a new mortgage on your main home.

Your certificate sets the rate: If the certificate credit rate is higher than 20%, the credit is capped at $2,000 a year; at 20% or below, no dollar cap applies.
Unused credit carries forward: If the credit exceeds your tax liability, the unused portion carries forward up to 3 years or until used.
It trims your deduction: You must reduce your Schedule A mortgage interest deduction by the credit amount from Form 8396.
Selling early can cost you: Sell within 9 years and you may have to recapture part of the benefit.

What you can’t claim

Homeowners insurance, HOA dues, and most settlement charges aren’t deductible. One benefit is real but deferred: when you sell, you can generally exclude up to $250,000 of gain, or $500,000 on a joint return, if you owned and lived in the home at least 24 months of the previous 5 years. See the IRS guidance on the sale and ownership of a home and our explainer on capital gains tax exemptions.

How to claim the tax benefits you qualify for

Start by comparing your itemized total against the standard deduction, because most of the benefits above only exist on Schedule A. For 2026 the standard deduction is $16,100 for single filers, $24,150 for heads of household, and $32,200 for married couples filing jointly. If your itemized deductions don’t clear that bar, itemizing costs you money.

Add up the deductible pieces. Form 1098 reports your mortgage interest and often the property taxes disbursed from your mortgage escrow account; add points from your Closing Disclosure. Only the amount above your standard deduction does any work.
Claim the MCC separately on Form 8396. The credit isn’t part of itemizing, so it’s worth having even if you take the standard deduction, but you must reduce any Schedule A interest deduction by the credit amount.
Keep the paperwork. Closing Disclosure, Form 1098, the certificate, and property tax bills, a habit that pairs naturally with budgeting for your first home.

Here’s the math on a real certificate. Say your Form 1098 shows $18,000 of mortgage interest and your certificate credit rate is 20%. That’s a $3,600 federal tax credit, a direct $3,600 cut in what you owe, and the remaining $14,400 of interest still counts toward your itemized deduction. Because the rate isn’t above 20%, the $2,000 annual cap doesn’t apply.

One caveat about timing: the certificate has to be approved before you close, through a participating lender, and nobody can retrofit one afterward. Not every wholesale lender in Align’s network can close a loan with an MCC attached, which is why it belongs in the lender conversation early. Confirm your numbers with a tax professional before you file.²

What Michigan buyers should know

Michigan runs an active Mortgage Credit Certificate program, and for a first-time buyer here it can be the largest tax benefit available, depending on how much interest you pay and how much tax you owe. The Michigan State Housing Development Authority lets qualified buyers credit 20% of the mortgage interest they pay or accrue each year against their federal tax liability, dollar for dollar, every year for the life of the original mortgage, up to 30 years. It’s open to first-time buyers statewide and repeat buyers in targeted areas, handled first-come, first-served through participating lenders, and can’t be issued on a loan that pays off an existing mortgage or land contract. Income limits run by county and household size, with a statewide sales price limit of $566,355 effective June 1, 2026.

MI 10K DPA pairs with the loan: MSHDA’s down payment assistance provides up to $10,000 as a 0% non-amortizing loan with no monthly payment, repaid when you sell, refinance, pay off the first mortgage or stop living in the home. It must be combined with a MSHDA MI Home Loan, which requires a 640 minimum credit score, and every buyer completes homebuyer education, see what counts as a good credit score to buy a house.
Michigan First-Time Home Buyer Savings Program: Contributions to a dedicated account are deductible from Michigan taxable income, up to $5,000 single or $10,000 joint, for tax years 2022 through 2026, on Form 5792. At Michigan’s 4.25% income tax rate, a full $10,000 deduction is worth about $425.
Principal Residence Exemption: Filing Form 2368 with your city or township assessor exempts your principal residence from up to 18 mills of local school operating tax. There are annual deadlines and new buyers miss them constantly, so ask at closing.
Homestead Property Tax Credit: For 2025 this state credit is worth up to $1,900. It shrinks 10% for each $1,000 that total household resources exceed $62,500, disappears above $71,500, and isn’t available if your taxable value tops $165,400.

Program details, income limits, and the lender list live with Michigan State Housing Development Authority programs.

How Align works with first-time buyers

You are not supposed to know all of this yet. Samantha handles your loan herself from the first conversation to the closing table, and she explains each step before you sign anything.

She places MSHDA loans, including down payment assistance, alongside FHA and conventional options, so you can compare them side by side.

Most buyers never compare. In a federal survey of 2023 home buyers, 66% applied with only one lender or broker. One application with Align reaches multiple wholesale lenders.

Get a first-time homebuyer plan

Sources: FHFA and CFPB, National Survey of Mortgage Originations, loans made in 2023.

FAQ: First-time home buyer tax credits

Here are answers to common questions about first-time home buyer tax credits.

Is there a $15,000 tax credit for first-time home buyers?

No, not under current law. The $15,000 figure comes from proposed bills: the First-Time Homebuyer Tax Credit Act, which would give 10% of the purchase price up to $15,000, and the DASH Act, which carries its own refundable first-time homebuyer credit. Neither has passed Congress. The money that is funded and open today is in first-time home buyer programs.

What tax breaks do first-time home buyers actually get?

Six. The mortgage interest deduction on up to $750,000 of acquisition debt, property tax deductions within a SALT cap of $40,400 for 2026, deductible points on a purchase loan, a penalty-free IRA withdrawal of up to $10,000, mortgage insurance premiums, deductible again for tax years beginning after December 31, 2025, and phased out entirely above $110,000 of adjusted gross income, and state Mortgage Credit Certificates. Our guide to budgeting for closing costs shows which settlement charges are deductible.

What is a Mortgage Credit Certificate (MCC)?

An MCC is a state housing agency program that gives eligible first-time buyers a federal tax credit equal to a percentage of the mortgage interest they pay each year, 20% in Michigan, with the remaining interest still deductible if they itemize. Because it’s claimed annually for the life of the original loan, an MCC can be worth thousands. You have to apply through a participating lender before closing. Pair it with our 15 first-time home buyer tips.

What is the difference between a tax credit and a tax deduction for homeowners?

A credit cuts your tax bill directly: a $2,000 credit saves you $2,000. A deduction only shrinks your taxable income, so a $2,000 deduction saves you $2,000 times your rate, $440 at 22%. That’s why MCC programs are worth more per dollar than the mortgage interest deduction, which also requires itemizing. Sort this out during the preparing to buy stage, not at tax time.

The bottom line on first-time home buyer tax credits

There is no active federal first-time home buyer tax credit, and the $15,000 credit in the First-Time Homebuyer Tax Credit Act, like the DASH Act’s version, is a bill in committee, not law. What you can claim today is real but smaller: mortgage interest on up to $750,000 of acquisition debt, state and local taxes up to $40,400 for 2026, points on a purchase loan, a $10,000 penalty-free IRA withdrawal, mortgage insurance premiums, deductible again for tax years beginning after December 31, 2025, and, the only true credit on the list, a Mortgage Credit Certificate worth 20% of your annual mortgage interest in Michigan, approved before you close.

If you’re ready to buy your first home and want the tax benefits built into the loan from day one, talk to Align Lending. We’ll shop your scenario across our lender network, flag whether an MCC-eligible program fits, and show you the numbers side by side. Call 248-506-5727 or start online.

Footnotes:

1. Example figures throughout this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms, a rate quote, or tax advice under federal or state law. Your actual tax savings depend on your income, filing status, bracket, loan amount, and whether you itemize. Return to text.

2. This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Federal and state tax rules, dollar limits, and program terms change and are subject to inflation adjustment. Consult a qualified tax professional about your situation. Return to text.

Sources: home acquisition debt limits of $750,000/$375,000 and $1 million/$500,000, IRS Publication 936 and Publication 530. Treatment of qualified mortgage insurance premiums as qualified residence interest for taxable years beginning after December 31, 2025, and the phase-out of 10% for each $1,000 ($500 if married filing separately) of adjusted gross income above $100,000 ($50,000 if married filing separately), 26 U.S.C. § 163(h)(3)(E) and (F) as amended by section 70108 of Public Law 119-21. State and local tax deduction limits of $40,000/$20,000 for 2025 and $40,400/$20,200 for 2026, the $505,000/$252,500 phase-down thresholds, and the $10,000/$5,000 floor, IRS Topic No. 503, Publication 530, and the IRS correction to the state and local income tax deduction amount in the 2026 Form 1040-ES. Mortgage Credit Certificate rules, including the $2,000 limit above a 20% certificate credit rate, the 3-year carryforward, the Schedule A reduction, and the 9-year recapture, IRS Publication 530 and Form 8396. Deductibility of points and the tests that apply, IRS Topic No. 504. The $10,000 penalty-free IRA first-home distribution and the 120-day requirement, IRS Topic No. 557 and Publication 590-B. Capital gains exclusion of $250,000/$500,000 and the 24-month ownership and use tests, IRS Topic No. 701. 2026 standard deduction and bracket thresholds, IRS tax inflation adjustments for tax year 2026. Repayment of the 2008 credit in 15 annual installments and the final Form 5405 revision, IRS Instructions for Form 5405 (Rev. November 2024). Proposed credit terms and status, H.R. 4717 and S. 2402 (119th Congress) and S. 4773, the DASH Act (119th Congress), Congress.gov and GovInfo. MSHDA Mortgage Credit Certificate, MI Home Loan, and MI 10K DPA program terms, including the 20% certificate credit rate and the $566,355 statewide sales price limit effective June 1, 2026, Michigan State Housing Development Authority. Michigan First-Time Home Buyer Savings Program deduction limits, eligible tax years, and Form 5792, and the 4.25% Michigan individual income tax rate, Michigan Department of Treasury. Principal Residence Exemption of up to 18 mills and Form 2368, and 2025 Homestead Property Tax Credit limits, Michigan Department of Treasury.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Consult a qualified tax professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.