Buying a house can lower your taxes, but only if you itemize deductions instead of taking the standard deduction

When you buy a house, you gain access to tax deductions that renters do not have — mainly the mortgage interest deduction and the property tax deduction. These deductions reduce the income the IRS counts as taxable, which can mean a larger refund if you are owed one, or a smaller tax bill if you owe. However, this only works if the total of your deductions exceeds the standard deduction, which is a flat amount the IRS lets everyone subtract automatically.

For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your mortgage interest and property taxes combined do not add up to more than that, you will not see a tax benefit from buying. Many homeowners, especially those with smaller mortgages or in lower-tax states, find that the standard deduction is still the better choice.

Key Takeaways

  • Mortgage interest and property taxes are deductible only if your total 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 couples filing jointly, and these amounts change each year.
  • You cannot deduct the principal portion of your mortgage payment, only the interest portion, which is larger in the early years of a loan.
  • State and local property taxes are capped at $10,000 per year for federal tax purposes, even if you pay more.
  • A tax professional or the IRS Free File program can help you calculate whether itemizing will save you money in your specific situation.

What parts of homeownership are tax-deductible

The mortgage interest deduction lets you deduct the interest you pay on a mortgage up to $750,000 of the loan amount. In the first years of a 30-year mortgage, most of your payment goes toward interest rather than principal, so this deduction is larger early on. As you pay down the loan, the interest portion shrinks and the principal portion grows, so the deduction becomes smaller over time.

Property taxes are also deductible, but with a limit: you can deduct up to $10,000 per year in state and local property taxes combined, regardless of how much you actually pay. This cap applies whether you own a home or pay other state and local taxes like income tax.

Other homeownership costs — homeowners insurance, HOA fees, utilities, maintenance, repairs, and mortgage principal — are not deductible on your federal tax return. Some states offer their own deductions or credits for homeowners, so check your state tax rules separately.

When itemizing saves you money versus the standard deduction

To benefit from the mortgage interest and property tax deductions, you must itemize deductions instead of claiming the standard deduction. You can only choose one. Itemizing means listing out all your deductible expenses — mortgage interest, property taxes, charitable donations, and certain medical expenses — and adding them up. If that total is higher than the standard deduction, you save money by itemizing.

For example, if you are married filing jointly and your mortgage interest is $8,000 and your property taxes are $5,000, your total is $13,000. Since the standard deduction for 2024 is $29,200, you would be better off claiming the standard deduction. But if your mortgage interest is $12,000 and property taxes are $8,000, your total is $20,000, which is still below $29,200. You would need other deductions — such as charitable donations or significant medical expenses — to push your total above $29,200 and make itemizing worthwhile.

How the mortgage interest deduction works in the first year

When you close on a home, you may have paid some interest for a partial month or closing period. That interest is deductible in the year you paid it, even if you only owned the home for part of the year. You will receive a Form 1098 from your lender by January 31 of the following year, which shows the total mortgage interest you paid during the year.

If you bought late in the year, your interest deduction for that year will be small because you only made a few payments. The deduction grows larger in subsequent years as you make a full year of payments. Keep in mind that if you refinance your mortgage, you start a new loan, and the interest deduction resets — you will have a larger interest portion in the early years of the new loan.

Property taxes and the $10,000 cap

Your property tax bill is set by your local government and varies widely depending on where you live. Some states have high property taxes; others have low ones. Regardless of the amount, you can deduct only up to $10,000 per year in combined state and local property taxes, income taxes, and sales taxes.

This means if you live in a high-tax state and pay $12,000 in property taxes alone, you can deduct only $10,000 of it. The remaining $2,000 cannot be deducted. This cap has been in place since 2018 and is set to expire after 2025, though Congress may extend it. Check current tax law closer to when you file.

How buying a house affects your refund amount

Your refund is determined by how much tax was withheld from your paychecks during the year versus how much tax you actually owe. If you buy a house and start itemizing deductions, your taxable income goes down, which means you owe less tax. If you had the standard amount withheld from your paychecks, you will have overpaid, and the IRS will refund the difference.

However, if you did not have enough withheld to begin with, a larger deduction might straightforward mean you owe less rather than receiving a refund. To increase your refund, you would need to adjust your withholding by filing a new Form W-4 with your employer, which tells them to withhold more from each paycheck. This is a separate step from filing your tax return.

When buying a house does not help your taxes

If your mortgage is small or your property taxes are low, the deductions may not exceed the standard deduction. In that case, buying a house provides no tax benefit. This is especially common for first-time homebuyers with modest down payments or those in states with lower property taxes.

Additionally, if you are subject to the Alternative Minimum Tax (AMT) — a separate tax calculation that applies to higher-income households — some deductions, including property taxes, may not reduce your tax bill. A tax professional can determine whether AMT applies to you.

Frequently Asked Questions

Do I get a tax refund just for buying a house?

No. Buying a house does not automatically generate a refund. It may lower your taxable income if you itemize deductions and those deductions exceed the standard deduction. Whether that results in a refund depends on how much tax was withheld from your paychecks during the year.

Can I deduct my down payment?

No. The down payment is part of the purchase price and is not deductible. Only the interest you pay on the mortgage loan is deductible, not the principal.

What if I paid points to lower my interest rate?

Points paid to reduce your interest rate are deductible, but the rules are complex. Points paid on a purchase are deducted over the life of the loan, while points paid on a refinance may be deducted in the year you pay them. A tax professional can help you calculate this correctly.

Does buying a house affect my tax refund if I use the standard deduction?

No. If you claim the standard deduction, homeownership deductions do not reduce your taxable income. You benefit from the deductions only if you itemize and your itemized deductions exceed the standard deduction.

Will buying a house lower my taxes next year?

It may, depending on your income, the size of your mortgage, your property taxes, and whether itemizing is worthwhile for you. The only way to know is to calculate your deductions and compare them to the standard deduction for your filing status.