Buying a house opens up several federal tax breaks, but most of them only pay off under specific conditions. The main ones are the mortgage interest deduction, the property tax deduction, and the deduction for points paid at closing — all three require you to itemize on Schedule A instead of taking the standard deduction. Beyond those, some buyers qualify for a mortgage credit certificate that acts as a direct dollar-for-dollar tax credit, first-time buyers can pull up to $10,000 from a traditional IRA without the early-withdrawal penalty, and when you eventually sell, up to $250,000 of profit ($500,000 for joint filers) can be excluded from federal tax. Whether any of these actually lowers your bill depends on your loan size, your income, your filing status, and where you live.
Will Itemizing Even Help You?
Most of the tax breaks tied to buying a home only work if you itemize deductions. That means your mortgage interest, property taxes, charitable gifts, and other qualifying expenses have to add up to more than the standard deduction. For 2026, the standard deduction is $16,100 for single filers or married filing separately, $24,150 for head of household, and $32,200 for married filing jointly.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Those figures are higher than they used to be, and that changes the calculation. A smaller mortgage in a low-tax state may not generate enough deductible expense to beat the standard deduction, in which case the “homeowner tax breaks” you hear about don’t produce any actual savings. Run the numbers each year. A first-year purchase with a full year of interest and property tax often pushes buyers past the threshold for the first time.
The Mortgage Interest Deduction
If you itemize, you can deduct the interest you pay on debt used to buy, build, or substantially improve a home you own. The deduction covers your main home and one additional residence, such as a vacation property, as long as the home secures the loan.2Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
For mortgages taken out after December 15, 2017, interest is deductible on up to $750,000 of home acquisition debt, or $375,000 if you’re married filing separately. Loans originated on or before that date keep a higher $1 million limit. The One, Big, Beautiful Bill Act, signed in July 2025, made these caps permanent.3Office of the Law Revision Counsel. 26 USC 163 – Interest
Home equity loans and HELOCs get treated differently. Interest on that borrowing is deductible only when you use the funds to improve the home securing the loan. Pulling equity out to consolidate debt, pay tuition, or take a trip means the interest isn’t deductible, no matter when you took the loan.2Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction Your lender reports the interest you paid each year on Form 1098, and that’s the figure you carry to your return.4Internal Revenue Service. About Form 1098, Mortgage Interest Statement
Deducting Points Paid at Closing
Points are prepaid interest you pay upfront to lower your mortgage rate. One point equals one percent of the loan amount, so on a $400,000 mortgage, a single point costs $4,000. Points paid to buy your main home can generally be deducted in full the year you pay them, provided the loan is secured by that home, the charge is in line with local lending practice, and the cash you brought to closing at least covered the points.2Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
Points on a second home don’t get the same treatment. They have to be spread across the life of the loan.5Internal Revenue Service. Topic No. 504, Home Mortgage Points Refinance points also generally have to be amortized. The exception is when part of the refinance goes toward substantially improving your main home; the portion of points tied to that improvement can be deducted the year you pay them.2Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
Property Taxes and the SALT Cap
Real estate taxes paid to your local government are deductible as part of the state and local tax (SALT) deduction, which also covers state income or sales taxes. Property tax shares a single cap with those.
For 2026, the SALT cap is $40,000 for most filers, or $20,000 if married filing separately.6Internal Revenue Service. Topic No. 503, Deductible Taxes That’s up substantially from the $10,000 cap in place from 2018 through 2024. The higher cap phases down for higher incomes: once modified adjusted gross income tops roughly $505,000 in 2026, the $40,000 cap shrinks by 30 cents on each additional dollar, bottoming out at $10,000. The cap and its income threshold rise one percent annually through 2029, then revert to $10,000 in 2030.
Only property taxes actually paid during the year count. If your lender collects taxes through an escrow account, the deductible number is what the lender disbursed to the taxing authority that year, not what you paid into escrow. Your year-end escrow statement will show the correct amount.
Mortgage Credit Certificates
A mortgage credit certificate (MCC) is a direct federal tax credit rather than a deduction. Because it reduces your tax bill dollar for dollar, it’s worth more per dollar than any deduction. State and local housing finance agencies issue MCCs, typically to first-time buyers with low-to-moderate incomes who meet purchase price and income limits.7Office of the Law Revision Counsel. 26 USC 25 – Interest on Certain Home Mortgages
Each certificate carries a credit rate between 10% and 50% of the mortgage interest you pay each year. When the rate is above 20%, the annual credit is capped at $2,000.7Office of the Law Revision Counsel. 26 USC 25 – Interest on Certain Home Mortgages A buyer with a 25% rate paying $9,000 in mortgage interest would calculate $2,250 but claim the $2,000 cap. Mortgage interest not used toward the credit can still be itemized, though you must reduce your interest deduction by the credit you actually take.8Internal Revenue Service. Form 8396 – Mortgage Interest Credit
You have to get the MCC before closing. It can’t be applied retroactively. Once in place, the credit renews each year for the life of the loan as long as you live in the home, which makes it one of the more valuable ongoing breaks for buyers who qualify.
Pulling From an IRA for a First Home
Buying a first home is one of the few situations where the IRS lets you take money from a traditional IRA before age 59½ without the usual 10% early-withdrawal penalty. The lifetime cap is $10,000 per person, or $20,000 for a married couple if both spouses have IRAs.9Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts That limit has been $10,000 since 1997.
To qualify, you and your spouse must not have owned a principal residence during the two years before the purchase, and the funds have to be used within 120 days of the distribution. Regular income tax still applies to the withdrawal; only the 10% penalty is waived. Roth IRA holders can already pull out their contributions tax- and penalty-free at any time, so the $10,000 first-home rule matters most for traditional IRAs and for Roth earnings.
The Capital Gains Exclusion When You Sell
This one doesn’t help at purchase, but it’s worth knowing about the day you buy. When you sell your home at a profit, you can exclude up to $250,000 of that gain from federal income tax, or up to $500,000 if you’re married filing jointly.10Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
To claim the full exclusion, you need to have owned the home for at least two years and used it as your primary residence for at least two of the five years before the sale. Those two-year periods don’t have to overlap or run consecutively.11Internal Revenue Service. Topic No. 701, Sale of Your Home A couple who bought at $350,000 and sold at $800,000 would owe no federal tax on the $450,000 gain, which is a benefit no other investment matches.
What You Won’t Get: Residential Energy Credits
If you’re planning to add solar, a heat pump, or efficient windows to your new home, know that the two federal residential energy credits ended on January 1, 2026. The Energy Efficient Home Improvement Credit (Section 25C) and the Residential Clean Energy Credit (Section 25D) no longer apply to property placed in service or expenditures made after December 31, 2025.12Internal Revenue Service. One, Big, Beautiful Bill Provisions Projects completed before then can still be claimed on a 2025 return, but nothing installed in 2026 or later qualifies for a federal residential energy credit.
Running the Numbers
The tax breaks tied to buying a house are real, but the ones tied to itemizing only produce savings when your mortgage interest, property taxes, and other deductible expenses clear the standard deduction. With those thresholds at $16,100 and $32,200 for 2026, many buyers with modest loans or lower property tax bills will still come out ahead taking the standard deduction. The breaks that tend to deliver reliable value are the mortgage credit certificate for qualifying buyers and the capital gains exclusion when you eventually sell. Recalculate each year: interest payments, property tax bills, and the standard deduction itself all shift, and the answer can change.