What you can deduct when you buy a house
The tax benefit of buying a house comes from deducting mortgage interest and property taxes on your federal income tax return, not from a refund tied to the purchase itself. You do not receive money back because you bought a house. Instead, these deductions lower your taxable income, which may result in a smaller tax bill or a larger refund if other factors in your return warrant it.
The amount you can deduct depends on three things: how much mortgage interest you actually paid that year, how much property tax you paid, and whether you itemize deductions on your tax return instead of taking the standard deduction. Most homeowners do not benefit from these deductions because the standard deduction is larger.
Key Takeaways
- Mortgage interest and property taxes are deductible only if you itemize deductions, which requires the total to exceed the standard deduction ($13,850 for single filers, $27,700 for married filing jointly in 2023).
- You can deduct mortgage interest on loans up to $750,000 of principal, and property taxes up to $10,000 per year, regardless of how many properties you own.
- The deduction appears on Schedule A of your tax return, not as a separate refund or credit.
- Points paid to lower your mortgage rate may be deductible in the year you buy, or spread across the life of the loan, depending on the loan type.
- State and local tax limits mean many homeowners in high-tax areas cannot deduct all their property taxes.
Mortgage interest deduction limits and how they work
You can deduct the interest portion of your mortgage payments, but only on the first $750,000 of the loan principal. If you took out a mortgage for $800,000, you can deduct interest only on $750,000 of it. This limit applies to the total across all mortgages you hold—if you have a primary mortgage and a home equity line of credit, they count together toward the $750,000 cap.
The interest you pay in your first year of ownership is usually higher than in later years, because early payments go mostly toward interest rather than principal. Your lender sends you a Form 1098 in January showing how much interest you paid in the previous year. That figure is what you use on your tax return. If you paid off the mortgage early or refinanced, the 1098 reflects only the interest paid before the payoff or refinance date.
Points—fees you pay upfront to lower your interest rate—may be deductible. If you paid points on a purchase mortgage, you can deduct them in the year you bought the house. If you paid points on a refinance, you must spread the deduction across the life of the new loan. Your lender reports points on the 1098 or in a separate disclosure.
Property tax deduction and the $10,000 state and local tax cap
You can deduct property taxes you paid on your home, but only up to $10,000 per year total across all state and local taxes combined. This $10,000 limit includes property taxes, state income taxes, and local sales taxes—you cannot deduct $10,000 in property taxes and then also deduct state income tax on top of it.
Your county assessor or tax collector sends you a bill showing your annual property tax. That is the amount you use. If you paid property taxes for only part of the year—because you bought the house mid-year, for example—you deduct only what you actually paid. The seller may have paid taxes for the months before you took ownership; those are not your deduction.
In states with high property taxes, the $10,000 cap means many homeowners cannot deduct all their property taxes. If your property tax alone is $12,000, you can deduct only $10,000 of it, and you cannot deduct any state income tax that year. This limit is in place through 2025 and may change after that.
When itemizing deductions makes sense versus taking the standard deduction
You benefit from the mortgage interest and property tax deductions only if your total itemized deductions exceed the standard deduction. For the 2023 tax year, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly. If your mortgage interest plus property taxes plus other deductible items (charitable donations, medical expenses above a threshold, and so on) add up to less than that, you are better off taking the standard deduction and ignoring the mortgage and property tax deductions.
Example: You are married, paid $15,000 in mortgage interest and $8,000 in property taxes in 2023. That is $23,000 in itemized deductions. The standard deduction for married filing jointly is $27,700. You would take the standard deduction and get no benefit from the mortgage interest and property taxes you paid. If you also donated $5,000 to charity, your itemized total becomes $28,000, which exceeds the standard deduction, so you would itemize and deduct all three categories.
Many first-time homebuyers expect a large tax refund from buying a house and are surprised to find they get none. This happens because their itemized deductions do not exceed the standard deduction, so the mortgage interest and property taxes produce no tax benefit at all.
How the deduction affects your refund or tax bill
The mortgage interest and property tax deductions lower your taxable income, which may lower your tax bill or increase your refund. The size of that effect depends on your tax bracket. If you are in the 22% tax bracket and you deduct $10,000 in mortgage interest, your federal income tax bill drops by $2,200. If you are in the 12% bracket, the same $10,000 deduction saves you $1,200.
Your refund is determined by your total tax situation for the year, not by the deductions alone. If you had too much tax withheld from your paychecks, you get a refund. If you had too little withheld, you owe. The mortgage interest and property tax deductions are one piece of that calculation. You might deduct $20,000 in mortgage interest but still owe taxes if your other income was high or your withholding was low.
You report the deductions on Schedule A of Form 1040. You do not file a separate form or claim for them. Your tax software or tax preparer enters the amounts from your 1098 and your property tax bill into the appropriate lines on Schedule A.
Deductions you cannot claim when buying a house
Several costs associated with buying a house are not deductible, even though they are real expenses. Closing costs such as appraisal fees, title insurance, inspections, and attorney fees are not deductible in the year you buy. Some of these costs are added to your cost basis in the home, which lowers your taxable gain if you sell later, but they do not produce a deduction now.
Homeowners insurance premiums are not deductible. Property improvement costs are not deductible (though they may increase your cost basis). Mortgage principal payments are not deductible—only the interest portion is. Down payment money is not deductible; it is your own capital going into the purchase.
If you are self-employed and use part of your home as an office, you may be able to deduct a portion of your mortgage interest, property taxes, utilities, and repairs as a home office deduction. That is a separate calculation and requires specific documentation of the square footage used for business.
State and local tax considerations
Some states do not have income tax, which means residents can use more of the $10,000 state and local tax cap for property taxes. Other states have both high income tax and high property taxes, which means the $10,000 cap is a real constraint. A few states allow a deduction for state income taxes paid, which further competes with the property tax deduction for the $10,000 limit.
If you move to a new state during the year, you may pay property taxes to both states. You can deduct the total, but it still counts against the $10,000 cap. Some states also allow a homestead exemption or property tax deferral for certain homeowners, which reduces the amount of property tax you owe and therefore the amount you can deduct.
Frequently Asked Questions
Do I get a tax refund just for buying a house?
No. You do not receive a refund because you bought a house. The mortgage interest and property tax deductions lower your taxable income, which may result in a smaller tax bill or a larger refund if other factors in your return warrant it. Many first-time buyers receive no tax benefit at all because their deductions do not exceed the standard deduction.
Can I deduct closing costs when I buy?
Most closing costs are not deductible in the year you buy. Appraisal fees, title insurance, inspections, and attorney fees do not produce a tax deduction. Some costs are added to your cost basis in the home, which affects your taxable gain if you sell later, but they do not lower your current-year taxes.
What if I paid off my mortgage early or refinanced mid-year?
Your lender reports only the interest you actually paid before the payoff or refinance on your Form 1098. That is the amount you deduct. If you refinanced and paid points on the new loan, those points must be deducted over the life of the new loan, not all in the year you refinanced.
Does the $10,000 property tax limit include state income tax?
Yes. The $10,000 limit is the total of all state and local taxes combined—property taxes, state income taxes, and local sales taxes all count toward it. If your property tax is $10,000, you cannot deduct any state income tax that year.
How do I know if I should itemize or take the standard deduction?
Add up your mortgage interest, property taxes, charitable donations, and any other deductible expenses. If the total exceeds the standard deduction ($13,850 for single filers, $27,700 for married filing jointly in 2023), itemize. If it does not, take the standard deduction. Your tax software can calculate both and show you which is larger.