First-Time Buyer Tax Benefits

Mortgage Interest Deduction

The mortgage interest deduction allows you to deduct the interest you pay on your home loan from your taxable income. For mortgages originated after December 15, 2017, you can deduct interest on up to $750,000 of qualified residence loans ($375,000 if married filing separately). In Ohio, where the median home price in markets like Dayton is around $285,000, most first-time buyers will fall well under this cap. In the early years of your mortgage, the majority of your monthly payment goes toward interest — which means the deduction is most valuable in the first several years of homeownership.

Real-world example: On a $250,000 mortgage at 6.5% interest, you'd pay roughly $16,200 in interest in the first year. If you're in the 22% tax bracket, that deduction could save you about $3,560 on your federal taxes.

Property Tax Deduction

State and local property taxes are deductible on your federal return, though the Tax Cuts and Jobs Act capped the combined state and local tax (SALT) deduction at $10,000 per year ($5,000 if married filing separately). This includes both property taxes and state income or sales taxes. In Ohio, average property tax rates vary by county — Montgomery County averages about 1.8% of home value, while Greene County is closer to 1.5%. On a $250,000 home, that's $3,750 to $4,500 in annual property taxes.

Important: You must itemize deductions to claim this benefit. If your total itemized deductions don't exceed the standard deduction ($14,600 for single filers in 2025, $29,200 for married filing jointly), the standard deduction may be more beneficial.

Private Mortgage Insurance (PMI) Deduction

If you put down less than 20% on a conventional loan, you'll pay private mortgage insurance. The PMI deduction allows you to deduct these premiums as mortgage interest — but it has been subject to renewal by Congress. For tax years where it's active, the deduction phases out for taxpayers with adjusted gross incomes above $109,000 (filing jointly). FHA mortgage insurance premiums (MIP) are not deductible under current tax law in most cases.

Mortgage Points Deduction

If you paid discount points at closing to lower your interest rate (one point = 1% of the loan amount), those points are typically deductible as mortgage interest in the year you bought the home. This is one of the few prepaid expenses that is fully deductible in the first year, as long as the points were standard for your area and the loan was for your primary residence.

Capital Gains Exclusion

While not an immediate benefit for first-time buyers, the capital gains exclusion is a powerful long-term tax advantage of homeownership. When you sell your primary residence, you can exclude up to $250,000 of capital gains ($500,000 for married couples filing jointly) from your taxable income — as long as you've lived in the home for at least two of the past five years. For Ohio markets where home values appreciate steadily, this can translate into substantial tax-free gains when you're ready to move up to your next home.