Can You Write Off a Down Payment on a House? Deductions and Basis

You cannot write off a down payment on a house. The IRS treats the money you put down as a transfer of cash into home equity rather than a loss or an expense, so it does not reduce your taxable income in the year you buy.¹ What can lower your tax bill are the other costs tied to the purchase — mortgage interest, points, property taxes, and certain closing fees — along with careful choices about where the down payment money comes from.

Why the Down Payment Itself Gives You No Deduction

When you hand over $50,000 on a $250,000 home, you haven’t spent $50,000 in any tax sense. You’ve converted cash into real estate equity, and your total wealth is unchanged. That’s why Publication 530 lists down payments among the costs homeowners cannot deduct.¹

The money you used was almost certainly already taxed as income when you earned it. Allowing a second deduction when you spent that money on a home would double the benefit. Instead, the down payment becomes part of your home’s cost basis, a figure that matters when you sell.

You Have to Itemize Before Any Home Deduction Helps

Every home-related deduction covered below only helps if you itemize on Schedule A instead of taking the standard deduction. For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.² Itemizing only pays off when your mortgage interest, property taxes, charitable gifts, and other eligible expenses add up to more than that.

Buyers who close late in the year often don’t clear the standard deduction in their first tax year. A few months of interest and prorated property tax may not be enough. Run the numbers both ways before assuming the purchase changes your return.

What You Can Actually Deduct After Buying

Mortgage Interest

Mortgage interest is the largest ongoing tax benefit of homeownership. You can deduct interest on up to $750,000 in mortgage debt used to buy, build, or substantially improve your main home or a second home ($375,000 if married filing separately).³ Your lender sends you Form 1098 each year showing the interest you paid.

Home equity loan interest is deductible only if you used the borrowed funds to buy, build, or substantially improve the home securing the loan. Borrowing against your home to pay off credit cards or fund a vacation produces no deductible interest.³

Mortgage Points

Points, sometimes called discount points, are prepaid interest that buys down your rate. Each point usually equals 1% of the loan amount. If you pay points to get a mortgage on your primary home, you can generally deduct the full amount in the year you pay them, provided the points are calculated as a percentage of the loan, shown on your settlement statement, in line with local practice, and paid with your own funds at or before closing.⁴ One point on a $300,000 loan is $3,000, deductible in the year of purchase when those conditions are met.

Points paid on a refinance or a second home are generally deducted over the life of the loan rather than all at once.³ Appraisal fees, notary fees, mortgage insurance premiums, and mortgage note preparation costs are not deductible as points.

Property Taxes at Closing

When you buy partway through the year, property taxes are prorated between you and the seller. If the seller already paid the full year, you reimburse them for the months you own the home, and that reimbursement counts as property tax you paid on Schedule A.¹

Property taxes fall under the state and local tax (SALT) deduction, capped at roughly $40,000 for most filers ($20,000 if married filing separately). The cap covers state income or sales taxes and property taxes combined. It phases down for modified adjusted gross income above $500,000 ($250,000 married filing separately) but cannot drop below $10,000.⁵ A January close gives you nearly a full year of deductible taxes; a December close gives you very little.

Closing Costs That Raise Your Basis Instead

Most closing costs cannot be deducted on your return, but several of them still help you by increasing your home’s cost basis. That’s the number the IRS uses to calculate your taxable profit when you sell. Costs that can be added to basis include:¹

Legal fees for title searches, sales contract preparation, and deed preparation.
Owner’s title insurance.
Recording fees charged by the county.
State or local transfer taxes on the property.
Survey costs.

Loan-related charges are a different matter. Appraisal fees required by the lender, credit report fees, loan assumption fees, and mortgage insurance premiums cannot be added to basis and are not deductible.⁶ They’re a cost of getting the loan, with no tax benefit now or later.

Hold on to your Closing Disclosure for as long as you own the home. Pay $300,000 for the house with $7,000 in basis-eligible closing costs and your adjusted basis is $307,000. That higher figure lowers any taxable gain when you sell — and while federal law lets single sellers exclude up to $250,000 in gain on a primary residence and married couples up to $500,000, homeowners in long-appreciating markets can still owe capital gains tax on anything above the exclusion.⁷

Tax Rules for Where the Down Payment Comes From

Traditional IRA Withdrawals

First-time homebuyers can pull up to $10,000 from a traditional IRA without the usual 10% early withdrawal penalty. It’s a lifetime cap per person, so spouses can each take $10,000 for a combined $20,000 penalty-free. You have 120 days from receiving the money to use it toward buying, building, or rebuilding a primary residence.⁸

No penalty is not the same as no tax. The full withdrawal is still ordinary income. A taxpayer in the 22% bracket who takes the maximum $10,000 owes $2,200 in federal income tax, just not the extra $1,000 penalty. “First-time homebuyer” is broad here: it covers anyone who hasn’t owned a principal residence during the two years before the purchase, along with their spouse, children, grandchildren, or ancestors.

Roth IRA Withdrawals

Roth IRAs are more flexible. Your original contributions (not earnings) can come out anytime, for any reason, tax- and penalty-free, because you already paid income tax on that money.⁹

Earnings work differently. You can withdraw up to $10,000 in earnings tax- and penalty-free for a first-time home purchase if the Roth has been open for at least five years, subject to the same 120-day window and $10,000 lifetime cap. If the account is younger than five years, the earnings withdrawal escapes the 10% penalty but is taxed as ordinary income.

401(k) Loans

Instead of withdrawing, you may be able to borrow from a 401(k) if your plan permits it. The limit is 50% of your vested balance or $50,000, whichever is less.¹⁰ Plan loans typically must be repaid within five years, though the law allows a longer term for loans used to buy a primary residence.

Because you repay a 401(k) loan to your own account with interest, there’s no income tax and no penalty on the borrowed amount. Leave the job before the loan is repaid, though, and the outstanding balance can be treated as a taxable distribution. The IRA first-time homebuyer penalty exception does not apply to 401(k) plans; the loan route is the only penalty-free option there.⁹

Gifts From Family

Money a family member gives you for a down payment is not taxable income. Gifts are excluded from the recipient’s gross income. For 2026, the annual gift tax exclusion is $19,000 per recipient, so each person can give you up to that amount without any gift tax filing.² Two parents can each give $19,000 to you and $19,000 to your spouse — $76,000 total — without any Form 709.

If a single gift exceeds $19,000, the giver files Form 709 but usually owes no gift tax thanks to the lifetime gift and estate tax exemption.¹¹ Lenders will ask for a gift letter confirming the money is not a loan. From your side, since you didn’t earn it, it isn’t taxable income and it doesn’t generate a deduction. Like the rest of your down payment, gifted funds become part of your basis in the home.

Mortgage Insurance Premiums

If your down payment is under 20%, your lender will probably require private mortgage insurance. Congress previously allowed a deduction for mortgage insurance premiums, but that provision has expired. Under current IRS guidance, PMI premiums are not deductible, cannot be treated as points, and cannot be added to your home’s cost basis.³

1
Internal Revenue Service. Publication 530 (2025), Tax Information for Homeowners
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
3
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
4
Internal Revenue Service. Topic No. 504, Home Mortgage Points
5
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
6
Internal Revenue Service. Publication 551 (12/2025), Basis of Assets
7
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
8
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
9
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
10
Internal Revenue Service. Retirement Topics – Plan Loans
11
Internal Revenue Service. Frequently Asked Questions on Gift Taxes