Buying a house opens up several federal tax breaks that renters don’t get. The main ones are the mortgage interest deduction, the deduction for state and local taxes (including property taxes), a deduction for points paid at closing, a returning deduction for private mortgage insurance starting in 2026, and — when you eventually sell — an exclusion of up to $250,000 or $500,000 of profit from your taxable income. A separate program, the Mortgage Credit Certificate, offers a direct tax credit to some lower-income first-time buyers. Whether any of the deductions actually cut your tax bill depends on one threshold question: do your itemized deductions add up to more than the standard deduction?
Do the Breaks Actually Help You? Check the Standard Deduction First
Every homeowner-related deduction on this list is claimed on Schedule A, which means you have to itemize instead of taking the standard deduction. For 2026, the standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If your mortgage interest, property taxes, charitable gifts, and other itemizable expenses combined don’t exceed those numbers, you’re better off taking the standard deduction and the homeowner breaks give you nothing.
This is where new buyers often miscalculate their savings. Track your deductible costs through the year and compare both totals before you file.2Internal Revenue Service. Deductions for Individuals: What They Mean and the Difference Between Standard and Itemized Deductions
Mortgage Interest Deduction
For homeowners who itemize, mortgage interest is usually the largest single deduction. If your loan closed after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt, or $375,000 if you’re married filing separately. Mortgages that predate that cutoff keep the older $1 million limit.3Office of the Law Revision Counsel. 26 USC 163 – Interest The loan has to be secured by the home itself.
Each January, your lender sends Form 1098 showing the interest you paid the prior year.4Internal Revenue Service. Instructions for Form 1098 That number goes straight onto Schedule A. The deduction covers your primary home and one additional residence, so a vacation home mortgage can count too.
Home equity loans and HELOCs qualify only if you used the money to buy, build, or substantially improve the home securing the loan. Borrowing against your house to pay off credit cards or fund a wedding won’t produce a deductible interest expense. Your primary mortgage and any home equity debt together still can’t exceed the $750,000 cap.3Office of the Law Revision Counsel. 26 USC 163 – Interest
Points Paid at Closing
Points you pay at closing to buy down your interest rate count as prepaid interest. Each point usually costs 1% of the loan amount. Prepaid interest is normally spread across the life of the loan, but the tax code allows a full deduction in the year you close if the loan is for a primary residence purchase and several conditions are met.5Office of the Law Revision Counsel. 26 USC 461 – General Rule for Taxable Year of Deduction
The points must be computed as a percentage of the loan, itemized on your closing disclosure, consistent with local practice, and paid with your own funds rather than rolled into the loan balance.4Internal Revenue Service. Instructions for Form 1098 Meet those and you deduct the full amount that year. On a $400,000 loan with two points, that’s $8,000 in the first-year deduction column.
Miss any of those requirements, or pay points on a refinance instead of a purchase, and you deduct them evenly over the life of the loan. On a 30-year mortgage, that’s one-thirtieth per year.
Property Taxes and the SALT Cap
Property taxes paid to your city, county, or state are deductible on Schedule A as part of the state and local tax deduction.6Office of the Law Revision Counsel. 26 USC 164 – Taxes That deduction also covers state income taxes (or state sales taxes, if you pick that instead), and one combined cap applies to everything.
For 2026 the cap is $40,000 for most filers, up from the $10,000 limit that applied from 2018 through 2025. Married couples filing separately are capped at $20,000. High earners face a phase-out that begins around $505,000 of modified adjusted gross income, but the cap never drops below $10,000. The threshold and the cap are set to rise 1% per year.
A common trap: only property taxes your lender actually paid to the taxing authority during the year count. If your taxes go through an escrow account, the deductible number is what left escrow for the government, not what you deposited. Your Form 1098 or year-end mortgage statement shows the disbursed amount.
Private Mortgage Insurance Deduction Returns in 2026
If you put less than 20% down, your lender likely requires private mortgage insurance. The One Big Beautiful Bill Act, signed in July 2025, reinstated and made permanent the deduction for mortgage insurance premiums beginning with the 2026 tax year. PMI premiums are treated as deductible mortgage interest on your federal return.
On a $350,000 mortgage, PMI running 0.5% to 1% a year is $1,750 to $3,500 in newly deductible costs. That’s often enough to push a borderline itemizer above the standard deduction threshold.
Mortgage Credit Certificates for Some First-Time Buyers
Certain lower- and moderate-income first-time buyers can qualify for a Mortgage Credit Certificate. An MCC is a credit, not a deduction, so it comes off your tax bill dollar for dollar.7Office of the Law Revision Counsel. 26 USC 25 – Interest on Certain Home Mortgages
The credit equals a percentage of your annual mortgage interest, set by the issuing housing agency at somewhere between 10% and 50%, and capped at $2,000 per year. At a 25% rate on $10,000 of interest, the credit hits the $2,000 cap. You can still deduct the mortgage interest that wasn’t offset by the credit.
You apply through a state or local housing finance agency before closing. Programs have income limits and price caps that vary by area, and not every area offers them. Once you have one, it renews each year for the life of the mortgage.
Capital Gains Exclusion When You Sell
The biggest tax break tied to owning a home shows up when you sell. Federal law lets you exclude up to $250,000 of gain from the sale of your primary residence if you’re single, or up to $500,000 if you’re married filing jointly.8Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence For most sellers, that wipes out the federal tax on the profit entirely.
To qualify, you must have owned the home and used it as your primary residence for at least two of the five years before the sale. The two years don’t have to be consecutive. If you owned the home for seven years, rented it out for three, and lived in it for four, you still meet the test. For married couples filing jointly, both spouses need to meet the use requirement, but only one needs to be on the title.8Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
You can use the exclusion again and again through your life, as long as you haven’t already claimed it on another home sale within the past two years. No other everyday investment gets treatment like this.
Costs That Are Not Deductible
Plenty of closing and ownership costs feel like they should be deductible, and aren’t. The only settlement charges you can deduct are mortgage interest (including qualifying points) and real estate taxes paid at closing.9Internal Revenue Service. Publication 530 – Tax Information for Homeowners Some other costs get added to your home’s cost basis, which can shrink your taxable gain when you sell. The rest are just non-deductible expenses.
Non-deductible costs commonly include:
- Title insurance and title search fees
- Appraisal and inspection fees
- Credit report charges
- Homeowners insurance premiums
- HOA or condo association fees
- Transfer taxes and recording fees
- Down payments, earnest money, and forfeited deposits
Ongoing homeowners insurance, utilities, and general repairs are also non-deductible.9Internal Revenue Service. Publication 530 – Tax Information for Homeowners The tax code rewards borrowing to buy and paying property taxes; it doesn’t reward maintaining or insuring the house.