You don't get a refund just for buying a house, but you may reduce your taxes through deductions and credits tied to homeownership

Buying a house does not trigger a refund in the way that overpaying your employer does. The IRS does not reward the purchase itself. What you may do is reduce the federal income tax you owe in the year you buy, or in years after, through specific deductions and credits — and if those reductions are large enough, you might owe less tax overall and receive a refund when you file.

The distinction matters. A refund comes from overpaying tax throughout the year. A deduction or credit reduces the tax you owe in the first place. Both can result in money back, but they work differently and explore to different parts of homeownership.

Key Takeaways

  • Mortgage interest and property taxes are deductible only if you itemize deductions on your tax return, and only if your total itemized deductions exceed the standard deduction for your filing status.
  • The mortgage interest deduction applies to loans up to $750,000 of principal, and property tax deductions are capped at $10,000 per year regardless of how much you pay.
  • First-time homebuyer credits are rare at the federal level and usually tied to specific programs or years; most states do not offer them either.
  • Points paid to lower your mortgage rate may be deductible in the year you buy, but only if you meet specific conditions about loan size and property use.
  • Energy-efficient home improvements made after purchase can generate credits in some years, though the rules change frequently.

Mortgage interest deduction and how it works

If you take out a mortgage to buy the house, you pay interest on that loan. That interest is deductible — but only if you itemize deductions on your tax return instead of taking the standard deduction. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. If your mortgage interest plus other deductible expenses (property taxes, charitable donations, medical expenses) add up to more than that, itemizing saves you money.

The deduction applies to loans up to $750,000 of principal. If your mortgage is larger, you can only deduct interest on the first $750,000. The interest is deductible in every year you carry the loan, not just the year you buy.

In the early years of a mortgage, most of your payment goes to interest rather than principal, so the deduction is largest then. As you pay down the loan, the interest portion shrinks, and so does the deduction. Many homebuyers find that their mortgage interest alone does not exceed the standard deduction, especially if they have no other large deductible expenses, which means they cannot benefit from this deduction at all.

Property tax deduction limits

Property taxes on your home are deductible if you itemize, but the deduction is capped at $10,000 per year. This cap applies to all state and local taxes combined — property tax, income tax, and sales tax together cannot exceed $10,000 in deductions. In states with high property taxes, this cap often means you cannot deduct the full amount you pay.

The $10,000 cap has been in place since 2018 and is set to expire after 2025 unless Congress extends it. If you are buying in a state with high property taxes, check what your annual bill will be and whether it will push you over the cap when combined with state income tax.

First-time homebuyer credits at the federal level

The federal government does not currently offer a tax credit straightforward for buying a house as a first-time buyer. A credit is different from a deduction — it reduces your tax dollar-for-dollar rather than reducing your taxable income — so it is more valuable. However, no standing federal credit exists for first-time purchases.

The First-Time Homebuyer Credit existed from 2008 to 2010 as a temporary measure during the housing crisis, offering up to $8,000 to may be able to access buyers. It has not returned. Some states and cities offer their own credits or deductions for first-time buyers, but these vary widely and are often tied to income limits or specific neighborhoods. Check your state's tax authority website or ask a tax professional whether your state has a program.

Points and loan origination fees

When you take out a mortgage, you may pay points — also called discount points — to lower your interest rate. One point equals 1 percent of the loan amount. Points are prepaid interest, and they are deductible in the year you buy, but only if specific conditions are met: the loan must be secured by your primary residence, the points must be a standard charge in your area, the amount must be clearly shown on your closing disclosure, and you cannot have paid points on a refinance of the same loan in an earlier year.

Loan origination fees and processing fees are not deductible. Only points may have access to. If you are unsure whether a fee is a point, your closing disclosure will label it clearly.

Energy-efficient improvements and tax credits

If you make energy-efficient improvements to your home after you buy it — such as installing a heat pump, solar panels, or a new roof with reflective material — you may be able to claim a credit. The rules for these credits change frequently and depend on the type of improvement and when you made it.

For the 2024 tax year, the Residential Energy Credit allows you to claim a percentage of the cost of certain improvements, up to a maximum credit amount that varies by improvement type. Solar installations, for example, can generate a 30 percent credit. However, these credits explore to improvements you make after purchase, not to the purchase itself, and the rules are set to change in coming years. Consult the IRS website or a tax professional before making improvements if you are counting on a credit.

When buying a house results in a refund

A refund happens when the deductions and credits you claim reduce your total tax liability below the amount you already paid through withholding or estimated tax payments during the year. If you buy a house in January and claim a large mortgage interest deduction, that deduction reduces your taxable income for the year. If the reduction is large enough, you may owe less tax overall, and if you have been paying tax through payroll withholding all year, you will receive a refund when you file in April.

The size of the refund depends on your total income, your filing status, and how much you paid in tax throughout the year. Buying the house itself does not create the refund; the deductions do. If you have not adjusted your withholding to account for the deduction, you may not see a refund until you file your return.

Frequently Asked Questions

Can I deduct closing costs?

Most closing costs are not deductible. Mortgage interest and property taxes are deductible if you itemize, and points may be deductible. Appraisal fees, title insurance, attorney fees, and inspection costs are not. Ask your tax professional which costs on your closing disclosure might may have access to.

What if I buy a house and sell it the same year?

You can still claim deductions for the time you owned it. If you owned the house for only part of the year, you deduct only the interest and taxes for those months. You may also owe capital gains tax on the sale, which is separate from the deduction question.

Do I have to itemize to get any benefit from buying a house?

Not necessarily. If your mortgage interest and property taxes do not exceed the standard deduction, you cannot benefit from those deductions. However, you may still benefit from credits for energy improvements or from state-level programs. A tax professional can model both scenarios to see which saves you more.

Can I deduct PMI if I put down less than 20 percent?

Private mortgage insurance (PMI) premiums were deductible in some years but the deduction has expired. Check with a tax professional about your specific situation, as rules have changed multiple times.

Does buying a house affect my tax filing status?

Buying a house does not change your filing status. Your status depends on your marital status and household situation on December 31 of the tax year, not on whether you own property.