Is Buying a House a Tax Write-Off: Interest, SALT, and Gains

Buying a house is not a single tax write-off, but the purchase and the ownership that follows open up several deductions that can lower your federal tax bill. A few closing costs come off your taxes in the year you buy. The larger benefits — mortgage interest, property taxes, and eventually a big exclusion on your profit when you sell — arrive over the years you own the home. None of it helps unless your itemized deductions add up to more than the standard deduction.

You Have to Itemize Before Any of It Counts

Every housing-related deduction runs through Schedule A. That means your mortgage interest, property taxes, charitable giving, and other qualifying expenses have to beat the standard deduction before homeownership changes your taxes at all. For 2026 the standard deduction is $16,100 for single filers, $24,150 for head of household, and $32,200 for married couples filing jointly.¹

This is the trap new homeowners fall into. They assume a mortgage alone will put them over the line, and often it doesn’t. Run the numbers on your actual deductible costs first; if they fall short of your standard deduction, the housing write-offs are worth nothing that year.

What You Can Deduct in the Year You Buy

Most of what you pay at closing is not deductible. A few items are.

Mortgage points, also called discount points or origination points, are upfront fees paid to the lender for a lower interest rate. One point equals one percent of the loan, so one point on a $400,000 mortgage costs $4,000. Points on a home purchase are generally deductible in the year you pay them, as long as charging points is customary in your area and the amount is typical for the market.²

Prorated mortgage interest from the closing date to the end of the first month is also deductible. Close on May 3 and you owe interest for the last 28 days of May; that amount appears on your settlement statement and comes off your taxes. The same works for property taxes. The IRS treats you as responsible for property taxes starting on the sale date, so your share paid at closing counts as a deductible expense on Schedule A.³

Closing Costs You Cannot Deduct, but Should Still Track

Your down payment is not an expense; it’s equity going into the property. Home inspection fees, appraisal fees, title insurance premiums, attorney fees, transfer taxes, and recording fees are not deductible in the year of purchase.³

Save the paperwork anyway. Most of those costs get added to your home’s cost basis, which is the IRS’s version of what you paid. Transfer taxes, recording fees, title insurance premiums, and legal fees tied to the purchase all raise your basis.³ A higher basis means less taxable profit when you sell. The benefit may be a decade away, but it’s real.

Mortgage Interest

This is the deduction most people picture when they think about buying a home. You can deduct interest on up to $750,000 of mortgage debt used to buy, build, or substantially improve your primary residence or a second home. For married couples filing separately, the cap is $375,000 each. The One, Big, Beautiful Bill Act made the $750,000 limit permanent; it had been set to revert to $1,000,000 in 2026.⁴

Mortgages taken out on or before December 15, 2017 keep the older $1,000,000 limit. Refinancing a pre-2018 mortgage generally preserves the higher cap, but only up to the balance of the old loan when you refinance.

Interest on a home equity line of credit is deductible only when you use the money to buy, build, or substantially improve the home securing the loan. A HELOC that pays off credit cards or funds a vacation doesn’t produce deductible interest.⁵ The combined balance still has to fit inside the $750,000 cap.

If you put down less than 20 percent on a conventional loan and pay private mortgage insurance, the deduction for mortgage insurance premiums is back for tax year 2026 after lapsing. Premiums are treated as deductible mortgage interest and phase out at higher incomes.

Property Taxes and the SALT Cap

Property taxes are deductible as part of the state and local tax deduction, known as SALT. For 2026 the SALT cap is $40,400 for most filers, or $20,200 if you’re married filing separately, a big jump from the $10,000 cap in place from 2018 through 2024. The cap rises by roughly one percent each year through 2029, then drops back to $10,000 for tax years after 2029.⁶

SALT covers your property taxes plus either state income tax or state sales tax, whichever is larger. You cannot claim both. For owners in high-tax states, the higher cap means a much bigger share of the property tax bill actually reduces federal taxable income than it did a year or two ago.

Improvements That Pay Off When You Sell

Money spent on the home after you buy can lower your taxes later if the work qualifies as an improvement rather than a repair. The IRS draws the line at whether the project adds value, extends the home’s useful life, or adapts it to a new use. Adding a bathroom counts. Fixing a leaky faucet doesn’t.⁷

Improvements that raise basis include room additions, a new roof, kitchen remodels, central air, landscaping, fencing, new plumbing or wiring, and built-in appliances.⁷ Repair-type work can count when it’s part of a larger project — replacing every window during a renovation, for instance. Keep receipts.

The Capital Gains Exclusion at Sale

The largest tax break tied to owning a home isn’t a deduction at all. When you sell your primary residence you can exclude up to $250,000 of profit from your income as a single filer, or up to $500,000 on a joint return.⁸ That gain simply doesn’t count as taxable income.

You must have owned and used the home as your primary residence for at least two of the five years before the sale. The two years don’t have to be consecutive.⁹ The exclusion is available once every two years.

This is where basis pays off. Buy a home for $300,000, put $80,000 into qualifying improvements, and sell for $650,000, and your taxable gain is $270,000, not $350,000. A single filer excludes $250,000 and owes tax only on the remaining $20,000. A married couple filing jointly excludes the entire gain.

Home Office

Self-employed people who use a dedicated part of the home exclusively and regularly for business can deduct a share of housing costs. Exclusively is the operative word: a spare bedroom that doubles as a guest room does not qualify.¹⁰

The simplified method is $5 per square foot, up to 300 square feet, for a maximum of $1,500.¹⁰ The regular method deducts the actual percentage of mortgage interest, property tax, insurance, utilities, and depreciation matching the office’s share of the home’s square footage. More paperwork, usually a bigger number. Employees who work from home for their employer’s convenience don’t get this deduction.

Medically Necessary Modifications

Home changes made for the medical needs of you, your spouse, or a dependent can be deducted as medical expenses on Schedule A. The IRS presumes certain accessibility improvements — entrance ramps, widened doorways, bathroom grab bars, stairway modifications, lowered kitchen cabinets — don’t raise the home’s market value, so their full cost qualifies.¹¹

For work that does raise value, like installing an elevator, you deduct only the amount by which the project’s cost exceeds the resulting increase in property value. Medical expenses overall are only deductible above 7.5 percent of your adjusted gross income.

Paperwork You’ll Need

Your lender sends IRS Form 1098 each January, showing the mortgage interest and any points paid during the prior year.¹² Prorated interest paid at closing may not appear on the 1098; add it and attach a short statement explaining the difference. Property taxes paid through escrow generally show up on your year-end mortgage statement, and your Closing Disclosure records any prorated taxes and interest settled at the table.³

Everything flows through Schedule A. Keep improvement receipts and your original Closing Disclosure until at least three years after you file the return reporting the sale of the home, which could be decades away.¹³

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
2
Office of the Law Revision Counsel. 26 USC 461 – General Rule for Taxable Year of Deduction
3
Internal Revenue Service. Publication 530 (2025), Tax Information for Homeowners
4
Office of the Law Revision Counsel. 26 USC 163 – Interest
5
Internal Revenue Service. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses) 2
6
Office of the Law Revision Counsel. 26 USC 164 – Taxes
7
Internal Revenue Service. Selling Your Home
8
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
9
eCFR. 26 CFR 1.121-1 – Exclusion of Gain From Sale or Exchange of a Principal Residence
10
Internal Revenue Service. Topic No. 509, Business Use of Home
11
Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
12
Internal Revenue Service. Instructions for Form 1098
13
Internal Revenue Service. Topic No. 305, Recordkeeping