You cannot get a tax refund straightforward for buying a house, but you may owe less in taxes if you itemize deductions and meet specific conditions
Buying a house does not trigger a refund from the IRS. However, certain expenses tied to the purchase—primarily mortgage interest and property taxes—can lower your taxable income if you itemize deductions on your tax return instead of taking the standard deduction. The difference between what you owe and what you have already paid through withholding might result in a refund, but that refund comes from your overall tax situation, not from the house purchase itself.
The key distinction: a tax deduction reduces the income the IRS taxes you on. A refund is money the government sends you because you overpaid during the year. Buying a house can create the first; it does not automatically create the second.
Key Takeaways
- Mortgage interest and property taxes are deductible only if you itemize deductions, and only if your total itemized deductions exceed the standard deduction for your filing status.
- The standard deduction for 2024 is $14,600 for single filers and $29,200 for married filing jointly, so most homebuyers must have substantial deductions to benefit.
- Points paid to lower your mortgage rate are deductible in the year you pay them, but only if the loan is for your primary residence and meets IRS rules.
- A refund happens when your total tax liability is less than what your employer withheld from your paychecks—the house purchase itself does not cause this.
Mortgage interest deductions and when they actually save you money
You can deduct mortgage interest paid during the year, but only on loans up to $750,000 of principal (or $1 million if the loan originated before December 16, 2017). The interest must be on a loan secured by your primary residence or a second home. Interest on a home equity line of credit is deductible only if the borrowed funds were used to build, buy, or substantially improve the home.
The catch: you must itemize deductions for this to matter. If your mortgage interest plus property taxes, state and local taxes (capped at $10,000 per year), and other deductible expenses do not exceed the standard deduction, you get no benefit. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. Many homebuyers, especially those with lower mortgage balances or in states with low property taxes, find that itemizing does not save them money.
If you do itemize and your deductions exceed the standard deduction, the difference reduces your taxable income. That reduction might lower your tax bill enough to create a refund when combined with withholding from your paychecks, but the house itself is not the source of the refund.
Property tax deductions and the $10,000 annual cap
Property taxes paid on your home are deductible, but subject to a combined $10,000 annual limit on state and local taxes (SALT). This cap includes property taxes, state income tax, and local income tax combined—not $10,000 per category. If you live in a high-tax state and pay $8,000 in property tax plus $5,000 in state income tax, only $10,000 of the combined amount is deductible.
Like mortgage interest, property tax deductions only help if you itemize. And the $10,000 cap means that in many cases, even homeowners with significant property tax bills do not reach the threshold where itemizing beats the standard deduction.
Points and origination fees: what is and is not deductible
Points (also called discount points) paid to lower your mortgage interest rate are fully deductible in the year you pay them, provided the loan is for your primary residence, the points are reasonable for your area, and the loan is secured by your home. One point equals 1 percent of the loan amount.
Origination fees, appraisal fees, title insurance, and recording fees are not deductible. These are closing costs that reduce your basis in the home for future capital gains purposes, but they do not lower your taxable income in the year you buy.
If you pay points over time as part of your monthly mortgage payment, you can deduct only the portion that represents actual points, not the portion that is regular interest. Your lender will report points on Form 1098 (Mortgage Interest Statement), which you receive by January 31 of the following year.
How to know whether itemizing actually saves you money
Gather your numbers for the year: mortgage interest (from Form 1098), property taxes paid, state and local income taxes, charitable donations, and any other deductible expenses. Add them up. If the total exceeds the standard deduction for your filing status, itemizing may save you money. If not, take the standard deduction.
Many people benefit from itemizing in the first year of homeownership because they pay a full year of property taxes and a full year of mortgage interest. In later years, as the principal portion of your payment grows and interest shrinks, itemizing may no longer be worthwhile. Some homeowners alternate between itemizing and taking the standard deduction depending on the year.
A tax professional or tax software can calculate both scenarios for you. The IRS also provides Worksheet A in Publication 17 to help you compare.
Capital gains exclusion when you sell: a different kind of tax benefit
Buying a house does not create a tax refund, but selling one may create a tax benefit. If you own and live in your home for at least two of the five years before you sell, you can exclude up to $250,000 of gain from your taxable income (or $500,000 if married filing jointly). This exclusion is not a refund; it is income you do not have to report at all.
This benefit applies only when you sell, not when you buy. It is one reason homeownership can be tax-advantaged over time, but it does not answer the question of whether buying itself triggers a refund.
Why your refund might be larger or smaller after buying a house
If you bought a house mid-year and started paying mortgage interest and property taxes, your total tax deductions for that year may increase. If you itemize, this could lower your tax bill. If your employer did not adjust your withholding to account for this change, you might receive a larger refund than usual when you file.
Conversely, if you bought a house and your employer increased your withholding (or you did not adjust it downward), you might receive a smaller refund or owe money, even though the house purchase itself created deductions.
The refund or amount owed is determined by the difference between your total tax liability and what you have already paid through withholding and estimated tax payments. The house purchase influences your liability, but it does not directly create a refund.
Frequently Asked Questions
Do first-time homebuyers get a tax refund?
No. There is no federal tax refund for first-time homebuyers. Some states offer tax credits or deductions for first-time buyers, but these vary by state and have specific income and purchase price limits. Check your state tax authority's website to see whether your state offers any benefit.
Can I deduct closing costs?
Most closing costs—appraisal, title insurance, recording fees, attorney fees—are not deductible in the year you buy. Points are an exception if they meet IRS rules. Other costs reduce your basis in the home, which lowers your taxable gain when you sell, but they do not lower your income tax in the year of purchase.
What if I paid property taxes before closing?
Property taxes paid before closing are typically handled through a proration at closing. The seller reimburses you for taxes covering the period before you owned the home. You deduct only the taxes you actually paid for the period you owned the home. Your closing statement will show which portion is yours.
Does buying a second home create different tax rules?
Mortgage interest on a second home is deductible under the same rules as a primary residence, up to the $750,000 principal limit. Property taxes on a second home count toward the $10,000 SALT cap. You cannot exclude capital gains on a second home when you sell—the exclusion applies only to your primary residence.
Will I owe taxes on a down payment gift from family?
No. Gifts to you are not taxable income. Your family member may have to file a gift tax return if the gift exceeds $18,000 (for 2024), but they owe any tax, not you. The gift does not affect your tax refund or liability.