First-time home buyers do not get a tax refund, but they may reduce their federal income tax through the mortgage interest deduction
A tax refund is money the government returns to you after you have overpaid your taxes during the year. First-time home buyers do not receive a refund simply for buying a home. However, once you own a home and pay mortgage interest, you can deduct that interest on your federal tax return if you itemize deductions — which may lower your tax bill and result in a larger refund if you have already had taxes withheld from your paychecks.
The distinction matters: buying a home itself triggers no refund. But the tax benefits that come with homeownership — mainly the mortgage interest deduction — can change how much tax you owe, which affects your refund size the following year.
Key Takeaways
- First-time home buyers do not receive a one-time tax refund for purchasing a home.
- The mortgage interest deduction reduces your taxable income if you itemize deductions, which may increase your refund when you file your next tax return.
- You must itemize deductions on Schedule A to claim mortgage interest; most taxpayers use the standard deduction instead, which means they see no tax benefit from homeownership.
- Property tax deductions are capped at $10,000 per year under current federal law, and this limit applies to all taxpayers regardless of first-time buyer status.
- Some states offer first-time buyer tax credits or deductions, but these vary by state and are separate from federal tax rules.
How the mortgage interest deduction works
If you itemize deductions on your federal tax return, you can deduct the interest you paid on your mortgage during the tax year. For example, if you paid $8,000 in mortgage interest and you are in the 22 percent federal tax bracket, that deduction could reduce your federal income tax by roughly $1,760. That reduction might result in a larger refund when you file your return the following year — assuming you had taxes withheld from your paychecks.
The catch is that you must itemize deductions to claim mortgage interest. Most taxpayers use the standard deduction instead, which is a flat amount that reduces your taxable income without listing individual deductions. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your mortgage interest plus other deductible expenses (property taxes, charitable donations, state income taxes) do not exceed the standard deduction, itemizing will not help you.
You will need to file Form 1040 with Schedule A attached to itemize deductions and claim mortgage interest. Your mortgage lender sends you Form 1098 each January, which shows the interest you paid during the previous year.
Property taxes and the $10,000 cap
As a homeowner, you can also deduct property taxes paid to your state and local government — but only up to $10,000 per year total. This limit applies to all taxpayers, including first-time buyers, and it combines state income taxes, local income taxes, and property taxes into one $10,000 ceiling.
In high-tax states like California, New York, and New Jersey, this cap means many homeowners cannot deduct all their property taxes. If your property taxes alone exceed $10,000, you can only deduct $10,000 of the combined total of property and income taxes. This limit has been in place since 2017 and does not change based on first-time buyer status.
State-level first-time buyer tax benefits
Some states offer their own tax credits or deductions for first-time home buyers, separate from federal rules. These programs vary widely by state and change year to year. For example, some states allow a one-time tax credit based on the purchase price or the down payment amount, while others offer deductions for mortgage interest that exceed federal limits.
To find out whether your state offers a first-time buyer tax benefit, contact your state's department of revenue or check the state tax authority website. You will need to file a state tax return to claim any state-level benefit, and the rules differ from federal deductions. Some states require you to have owned the home for a minimum time before you can claim the credit, while others have income limits or purchase price caps.
When homeownership increases your refund
Your refund size depends on how much tax was withheld from your paychecks during the year versus how much tax you actually owe. If you itemize deductions and claim mortgage interest, your taxable income drops, which means your tax bill drops. If your employer withheld more tax than you owe, the difference comes back to you as a refund.
For example: suppose you earned $60,000 and had $8,000 withheld for federal taxes. Without homeownership deductions, you might owe $7,200 in tax, resulting in a $800 refund. But if mortgage interest and other itemized deductions lower your taxable income enough to reduce your tax bill to $6,500, your refund would be $1,500 instead. The homeownership deduction did not create a refund — it changed the size of the refund you were already going to receive.
If you do not itemize deductions, homeownership has no effect on your federal refund. You will use the standard deduction regardless of whether you own a home or rent.
First-time buyer programs that are not tax refunds
Some first-time buyer programs offer down payment help, closing cost assistance, or favorable loan terms — but these are not tax refunds. Programs like the Federal Housing Administration (FHA) loan program, state housing finance agencies, and nonprofit down payment assistance programs provide money or favorable terms at the time of purchase, not through the tax system.
These programs may help you afford a home, but they do not show up on your tax return as a refund. If you received down payment assistance as a grant (not a loan), that money is generally not taxable income, so it does not affect your tax refund either. If you received assistance as a forgivable loan, the forgiveness may be taxable in the year it is forgiven, which could reduce your refund that year.
How to claim mortgage interest on your tax return
To claim mortgage interest, you must file Form 1040 with Schedule A (Itemized Deductions) attached. You cannot claim mortgage interest if you use the standard deduction. Here is the basic order:
- Gather your Form 1098 from your mortgage lender, which shows interest paid in the previous year.
- Add up all your itemized deductions: mortgage interest, property taxes (up to $10,000), charitable donations, and state and local income taxes.
- Compare the total to the standard deduction for your filing status.
- If itemized deductions exceed the standard deduction, file Schedule A with Form 1040 and claim the mortgage interest.
- If the standard deduction is higher, use the standard deduction instead — you will not benefit from itemizing.
Many tax software programs walk you through this decision automatically. If you use a tax preparer, they will determine whether itemizing or using the standard deduction saves you more money.
Frequently Asked Questions
Do I get a tax refund just for buying a home?
No. Buying a home does not trigger a tax refund. However, the mortgage interest you pay in future years may reduce your taxable income if you itemize deductions, which could increase your refund when you file your next tax return.
What if I paid points to lower my mortgage rate?
Points paid to reduce your interest rate are deductible, but the rules depend on whether you paid them upfront or rolled them into the loan. Points paid at closing can usually be deducted in full in the year of purchase. Points rolled into the loan must be deducted over the life of the loan. Your Form 1098 will show deductible points separately.
Can I claim both mortgage interest and the standard deduction?
No. You must choose one: either itemize deductions (which includes mortgage interest) or use the standard deduction. You cannot do both. Most taxpayers benefit from the standard deduction because it is higher than their itemized deductions would be.
Does my first-time buyer status matter for the mortgage interest deduction?
No. The mortgage interest deduction is available to any homeowner who itemizes deductions, regardless of whether it is their first home or tenth home. First-time buyer status does not change the deduction rules.
What if I bought a home late in the year?
You can deduct mortgage interest for any month in which you owned the home and paid interest, even if you bought it in December. Your lender will report the interest paid on your Form 1098 for that year.