Claim Tax Deductions Buying House – Buying a house is one of the biggest financial decisions you’ll make, but it also unlocks valuable tax breaks that can lower your federal tax bill. If you’re wondering how to claim tax deductions buying house expenses in the United States, you’re not alone. Under current IRS rules for tax year 2025 (returns filed in 2026) and beyond, key deductions include mortgage interest, property taxes, and qualifying points. These can significantly reduce your taxable income—if you itemize deductions on Schedule A (Form 1040).
Recent changes from the One Big Beautiful Bill Act (OBBBA) have expanded some benefits, such as a higher state and local tax (SALT) deduction cap. This guide breaks down exactly what you can deduct when purchasing a home, who qualifies, and how to claim everything correctly. All information is based on the latest IRS Publications 530 and 936 (for 2025 returns).
Mortgage Interest Deduction: The Biggest Tax Break for New Homeowners
The mortgage interest deduction remains one of the most powerful ways to claim tax deductions buying house. You can deduct interest paid on loans used to buy, build, or substantially improve your main home or a second home.
For mortgages taken out after December 15, 2017, the deduction limit is $750,000 of debt ($375,000 if married filing separately). Mortgages originated before December 16, 2017, qualify for the higher $1 million limit ($500,000 if married filing separately). These limits apply to the combined balance of all qualifying mortgages on your primary and secondary residences.
Key qualifications:
- The loan must be secured by your qualified home.
- Proceeds must be used to acquire or substantially improve the home (acquisition debt).
- Home equity loan interest is deductible only if the funds are used to buy, build, or improve the home securing the loan.
Report deductible interest from Form 1098 on Schedule A, line 8a. If not reported on Form 1098, use line 8b.
Property Tax Deduction and the Updated SALT Cap
Real estate (property) taxes you pay on your new home are fully deductible as part of the SALT deduction—provided you itemize. This includes taxes paid at closing (prorated between buyer and seller based on ownership days) or through escrow.
Thanks to OBBBA, the SALT cap increased to $40,000 for married filing jointly ($20,000 if married filing separately) for tax years 2025–2029. The cap rises by 1% annually through 2029 and phases out for higher incomes (starting at modified AGI of $500,000 joint/$250,000 separate). It reverts to $10,000 after 2029.
You can deduct only taxes actually paid to the taxing authority during the year. Delinquent taxes paid on the seller’s behalf are added to your home’s basis instead of being deducted.
Deducting Mortgage Points When Buying a House
Mortgage points (also called discount points or origination fees) are prepaid interest that can lower your interest rate. When buying a home, you can often claim tax deductions buying house by deducting qualifying points in full in the year you pay them.
To deduct points fully in the purchase year (cash-method taxpayers), all these IRS tests must be met:
- The loan is secured by your main home.
- Paying points is an established business practice in your area.
- The amount is not more than what’s typically charged locally.
- The points are not a substitute for other fees (like appraisal or title fees).
- You provide funds at closing (down payment or escrow) at least equal to the points charged (seller-paid points also qualify and are treated as paid by you).
- The loan is to buy or build your main home.
- Points are shown as a percentage of the principal on the settlement statement.
If the tests aren’t fully met, deduct points ratably over the life of the loan. Seller-paid points reduce your home’s basis but are still deductible by you if tests are satisfied. Report on Schedule A, line 8a or 8c.
What Closing Costs Are Tax-Deductible When Buying a House?
Most closing costs and settlement fees are not immediately deductible. Instead, they increase your home’s tax basis (reducing future capital gains when you sell).
Immediately deductible closing costs (if you itemize):
- Mortgage interest paid at closing.
- Prorated real estate taxes paid at closing.
- Qualifying mortgage points (as explained above).
Added to your home’s basis (not deducted now):
- Title insurance, abstract fees, legal fees for title work, recording fees, surveys, transfer taxes, and owner’s title insurance.
- Seller-obligated costs you pay (e.g., back taxes or repairs).
Nondeductible and not added to basis:
- Homeowners insurance premiums, appraisal fees (if lender-required), credit reports, loan assumption fees, utilities, and most other service charges.
Review your HUD-1 or Closing Disclosure statement carefully—only a small portion qualifies for immediate deduction.
Private Mortgage Insurance (PMI) Deduction Status in 2026
PMI or mortgage insurance premiums paid on loans with less than 20% down were previously deductible but expired after 2021. Under OBBBA updates, the deduction for qualifying mortgage insurance premiums is reinstated and made permanent starting with the 2026 tax year (returns filed in 2027). Check IRS guidance for income limits and exact eligibility when filing.
Energy-Efficient Upgrades and Tax Credits for New Buyers
If you made qualifying energy-efficient improvements (solar panels, wind turbines, etc.) when buying or shortly after, you may qualify for residential clean energy credits. However, many energy credits expired after December 31, 2025. Confirm current availability via IRS Form 5695.
How to Claim Tax Deductions Buying House on Your Return?
- Itemize instead of taking the standard deduction — For 2025 returns, the standard deduction is approximately $15,750 (single) or $31,500 (joint). Itemize only if your total deductions (mortgage interest + SALT + points + others) exceed this amount.
- Gather documents — Form 1098 (mortgage interest and points), settlement statement, property tax statements.
- File Schedule A (Form 1040) — Enter mortgage interest on lines 8a–8c, real estate taxes on line 5b.
- Use tax software or a professional — Tools like TurboTax or a CPA can maximize your claims and flag errors.
You must have legal ownership and an ownership interest in the home.
Common Mistakes to Avoid When Claiming Home Purchase Deductions
- Claiming nondeductible closing costs as immediate deductions.
- Forgetting to prorate property taxes paid at closing.
- Missing seller-paid points (they’re deductible but reduce basis).
- Not comparing itemized vs. standard deduction.
- Failing to track basis increases for future sales.
Is Itemizing Worth It for New Homebuyers?
In high-cost areas or with a large mortgage, itemizing often beats the standard deduction. Run the numbers both ways. Tools on IRS.gov or tax software make this easy.
Final Tips to Maximize Your Tax Savings When Buying a House
Consult a tax professional or use IRS Interactive Tax Assistant for personalized advice. Keep all records for at least three years. Rules can change, so always verify with the latest IRS Publications 530 and 936.
By understanding how to claim tax deductions buying house, you can turn your new home purchase into real tax savings. Start planning now—your wallet will thank you at tax time. For the most current forms and instructions, visit IRS.gov.