You don't get a refund just for buying a house, but you may reduce your taxes owed through deductions

Buying a house does not trigger a refund by itself. However, if you paid mortgage interest or property taxes during the year, you can deduct those amounts from your taxable income when you file your return. The result is a smaller tax bill — and if your total deductions exceed what you owe, you may receive a refund. The key is understanding which home-related expenses the IRS allows you to deduct and whether deducting them actually saves you money.

The most common home-related deductions are mortgage interest and state and local property taxes. Mortgage interest is the portion of your monthly payment that goes toward interest rather than principal — your lender sends you a Form 1098 each January showing the total. Property taxes paid to your county or municipality are also deductible. However, these deductions only help you if you itemize deductions on your tax return rather than taking the standard deduction, and only if your total itemized deductions exceed the standard deduction amount for your filing status.

Key Takeaways

  • Mortgage interest and property taxes are deductible, but only if you itemize deductions instead of taking the standard deduction.
  • The standard deduction for 2024 is $14,600 for single filers and $29,200 for married filing jointly, so your home deductions must exceed these amounts to save you money.
  • First-time homebuyer credits and energy-efficient home improvements may reduce your tax bill, but these are separate from deductions and have specific requirements.
  • Your lender will send you a Form 1098 showing mortgage interest paid; your county assessor or tax bill shows property taxes paid.

When mortgage interest and property taxes actually reduce your refund

Deducting mortgage interest and property taxes only saves you money if you itemize deductions. To itemize, you list out all your deductible expenses — mortgage interest, property taxes, charitable donations, medical expenses, and others — and add them up. If that total is larger than the standard deduction for your filing status, you subtract the larger amount from your income, which lowers your taxable income and your tax bill.

For 2024, the standard deduction is $14,600 for single filers, $29,200 for married filing jointly, and $21,900 for head of household. If your mortgage interest plus property taxes plus other deductible expenses add up to more than your standard deduction, itemizing saves you money. If they don't, you're better off taking the standard deduction, and the mortgage interest and property taxes don't reduce your taxes at all.

For example, if you're married filing jointly and paid $8,000 in mortgage interest and $6,000 in property taxes in 2024, your home deductions total $14,000. That's less than the $29,200 standard deduction, so you would take the standard deduction instead. Your home expenses would not reduce your taxes. But if you also donated $20,000 to charity that year, your total itemized deductions would be $34,000, which exceeds the standard deduction, so itemizing would save you money.

First-time homebuyer credits and other tax breaks

A tax credit is different from a deduction. A credit reduces your tax bill dollar-for-dollar, while a deduction reduces your taxable income. The federal government does not currently offer a general first-time homebuyer credit, though some states do. Check your state's tax authority website to see whether your state offers a homebuyer credit or deduction.

However, if you made energy-efficient improvements to your home — such as installing solar panels, a heat pump, or an electric water heater — you may be able to claim the Residential Energy Credits. These credits can reduce your tax bill by up to $3,200 per year for certain improvements. You'll need to keep receipts and documentation of the work performed, and the improvements must meet specific efficiency standards set by the IRS.

Some people also confuse homebuyer credits with down payment assistance programs. Down payment assistance is money given to you to help pay for your down payment; it's not a tax refund. These programs are run by state and local housing agencies, nonprofits, and sometimes lenders, and they have their own requirements and timelines separate from your tax return.

How to report mortgage interest and property taxes on your return

Your mortgage lender sends you a Form 1098 by January 31 each year. This form shows the total mortgage interest you paid during the year in Box 1. You'll need this form to deduct mortgage interest on your tax return. If you paid off your mortgage early or refinanced, you may receive multiple 1098 forms, one from each lender.

Property taxes are reported on Schedule A (Itemized Deductions) if you itemize. You can find the amount on your property tax bill or county assessor's website. Some people also pay property taxes through their mortgage escrow account; your Form 1098 may show this amount separately, or you may need to look at your escrow statement to find it.

If you're using tax software, it will walk you through entering this information. If you're filing by hand or working with a tax preparer, bring your Form 1098 and property tax documentation with you. The IRS does not send you a separate form for property taxes — you report them based on what you paid.

State and local tax deduction limits

The federal government caps the total amount you can deduct for state and local taxes (SALT) at $10,000 per year. This limit includes state income tax, state sales tax, and property taxes combined. If you live in a state with high income tax or high property taxes, you may hit this cap.

For example, if you paid $8,000 in state income tax and $5,000 in property taxes, your SALT deduction would be capped at $10,000 total, not $13,000. This limit applies whether you're single or married filing jointly. The cap was set to expire after 2025, but Congress may extend it; check the IRS website or your tax software for the current year's rules.

What happens if you sell the house later

Selling a house does not create a tax refund either, but it may create a tax bill or reduce your taxes owed. When you sell, you calculate your capital gain — the difference between what you paid for the house (your basis) and what you sold it for. If you lived in the house as your primary residence for at least two of the last five years, you can exclude up to $250,000 of the gain from your income if you're single, or $500,000 if you're married filing jointly.

If your gain is less than the exclusion amount, you owe no tax on the sale. If it's more, you pay capital gains tax on the excess. This is separate from the deductions you claimed while you owned the house. The deductions you took for mortgage interest and property taxes reduced your taxes in the years you owned the house; they don't affect the tax on the sale itself.

Frequently Asked Questions

Can I deduct points I paid to get a lower mortgage rate?

Yes, if you paid points (prepaid interest) to reduce your mortgage rate, you can deduct them. However, the deduction is spread over the life of the loan, not taken all at once in the year you paid them. Your Form 1098 will show the deductible points. If you pay off the loan early or refinance, you can deduct any remaining points in that year.

Do I get a refund if I paid property taxes through escrow?

No, but you can still deduct them. Property taxes paid through your mortgage escrow account are deductible just like taxes you pay directly to the county. Your escrow statement or Form 1098 will show the amount. The deduction works the same way — it only saves you money if you itemize and your total deductions exceed the standard deduction.

What if I bought the house late in the year and only paid a few months of interest?

You deduct only the interest you actually paid during that tax year. If you closed on the house in November and paid three months of interest before December 31, you deduct only those three months' worth. The remaining interest is deductible in the following year.

Can I deduct homeowners insurance or HOA fees?

No. Homeowners insurance, HOA fees, utilities, maintenance, and repairs are not deductible on your federal tax return. Only mortgage interest and property taxes are deductible for homeowners who itemize. Some states may allow additional deductions; check your state tax authority's website.

Do I need to report the house purchase itself to the IRS?

No. Buying a house is not a taxable event. You only report it to the IRS through deductions (mortgage interest, property taxes) or when you sell it later. Your lender will send you a Form 1098, which you use to claim deductions, but you don't file a separate form just to tell the IRS you bought a house.