Tax Deductions on Buying a House Guide – Buying a home is one of the biggest financial decisions you’ll make, but it comes with significant tax advantages under U.S. federal tax rules. This comprehensive guide to tax deductions on buying a house breaks down everything homebuyers need to know for the 2026 tax year (returns filed in 2027). Whether you’re a first-time buyer or upgrading, these deductions can lower your taxable income substantially—if you itemize correctly.
Recent changes from the One Big Beautiful Bill Act (signed July 2025) have made key benefits more favorable, including a higher state and local tax (SALT) cap and the permanent reinstatement of mortgage insurance premium deductions starting in 2026.
Always consult a tax professional or refer to IRS Publications 530 and 936 for your specific situation, as rules depend on filing status, loan dates, and income.
What Are Tax Deductions for Homebuyers in 2026?
Tax deductions for buying a house primarily reduce your taxable income when you itemize on Schedule A of Form 1040. The most valuable ones include mortgage interest, property taxes, and certain closing costs. Unlike tax credits, deductions lower the amount of income subject to tax.
Key eligibility: You must itemize deductions instead of taking the standard deduction ($16,100 for singles, $32,200 for married filing jointly, and $24,150 for heads of household in 2026). Most closing costs are not immediately deductible but may increase your home’s tax basis (reducing future capital gains taxes when you sell).
Mortgage Interest Deduction: The Largest Homebuyer Tax Break
The mortgage interest deduction (MID) remains one of the most powerful tax deductions on buying a house. You can deduct interest paid on loans used to buy, build, or substantially improve your primary home or second home.
- Debt limits (permanent under current law): Up to $750,000 ($375,000 if married filing separately) for mortgages taken out after December 15, 2017. Loans originated before December 16, 2017, qualify for the higher $1 million limit ($500,000 if married filing separately).
- Home equity loans or HELOCs qualify only if proceeds are used to buy, build, or improve the home.
- Report via Form 1098 from your lender; use IRS Publication 936 worksheets for calculations.
This deduction applies even in your first year of ownership for interest paid at closing or throughout the year.
Property Tax Deductions and the Updated SALT Cap
Property taxes (real estate taxes) paid on your new home are deductible as part of the state and local tax (SALT) deduction.
- 2026 SALT cap: $40,400 for single filers, heads of household, or married filing jointly ($20,200 for married filing separately). This is up from $40,000 in 2025 and increases 1% annually through 2029 before reverting to $10,000 in 2030.
- Property taxes paid at closing (prorated amounts) count in the year paid.
- Phaseout: The cap begins reducing for modified adjusted gross income (MAGI) above approximately $505,000 in 2026, with a floor of $10,000 for very high earners.
High-tax states benefit most from this expanded SALT limit when itemizing.
Mortgage Points: Fully Deductible in the Year of Purchase
Mortgage points (also called discount points) are prepaid interest paid at closing to lower your interest rate. Each point typically costs 1% of your loan amount.
- For a home purchase, you can deduct the full amount in the year paid if:
- The loan is for your principal residence.
- Paying points is customary in your area.
- The points are not for other services (e.g., appraisal fees).
- Seller-paid points may also qualify under specific IRS rules.
This is one of the best immediate tax deductions on buying a house—potentially thousands in savings in year one.
Private Mortgage Insurance (PMI) Premiums: Back and Deductible in 2026
If you put down less than 20%, you likely pay PMI or mortgage insurance premiums (MIP for FHA loans).
- Major 2026 update: The One Big Beautiful Bill Act reinstates and makes permanent the deduction for qualified mortgage insurance premiums, treating them as deductible home mortgage interest starting in tax year 2026.
- Applies to contracts issued after 2006; no phaseout based solely on income for the deduction itself (subject to overall itemized limits and mortgage debt caps).
This is excellent news for new buyers with smaller down payments.
Which Closing Costs Are Tax Deductible When Buying a House?
Not all closing costs qualify as immediate deductions. Per IRS rules:
- Deductible immediately (if itemizing): Prepaid mortgage interest (including points) and real estate taxes paid at closing.
- Added to your home’s basis (increases cost basis for lower future capital gains): Many other fees, such as title fees, recording fees, and attorney fees related to the purchase.
Review your HUD-1 or Closing Disclosure form carefully.
Common Non-Deductible Closing Costs (and What to Do Instead)
Most buyer-paid closing costs are not deductible in the purchase year:
- Home inspection fees
- Appraisal fees
- Title insurance
- Escrow or settlement fees
- Homeowners insurance premiums
- Attorney or notary fees
These costs are typically added to your home’s adjusted basis instead, reducing taxable gain when you eventually sell. Keep excellent records.
When Does Itemizing Make Sense for New Homebuyers?
Compare your total itemized deductions (mortgage interest + property taxes + points + PMI + other qualified items) against the 2026 standard deduction. With higher SALT limits and reinstated PMI, more buyers—especially in high-tax or high-home-price areas—will benefit from itemizing in their first year.
Use tax software or IRS tools to run the numbers. If your new home pushes you over the standard deduction threshold, the tax savings can be substantial.
How to Claim Tax Deductions on Buying a House?
- Gather Form 1098 (Mortgage Interest Statement) from your lender.
- Save your Closing Disclosure and receipts for points, taxes, and PMI.
- Itemize on Schedule A (Form 1040).
- File Form 1040 (or 1040-SR).
- Consider free IRS resources or professional help—especially if you have a second home or refinanced.
Deadlines: April 15, 2027 (or extension to October) for 2026 taxes.
Additional Tax Benefits for New Homeowners
While not direct “buying” deductions:
- Energy-efficient improvements may qualify for residential energy credits (Form 5695).
- Home office deduction if you use part of your home exclusively for business.
- Future capital gains exclusion (up to $250,000/$500,000) when selling, boosted by higher basis from non-deductible closing costs.
No broad federal first-time homebuyer credit exists in 2026, but check state programs.
Common Mistakes to Avoid with Home Purchase Tax Deductions
- Forgetting to itemize even when it saves money.
- Deducting non-qualifying closing costs immediately.
- Missing seller-paid points.
- Not tracking prorated property taxes paid at closing.
- Assuming all mortgage interest is deductible without applying debt limits.
Double-check with Publication 530 (Tax Information for Homeowners) and Publication 936.
Maximize Your Tax Deductions on Buying a House in 2026
Navigating tax deductions on buying a house can save you thousands in your first year and beyond. The mortgage interest deduction, expanded SALT cap, full points write-off, and reinstated PMI deduction make 2026 a strong year for new homeowners.
Review your Closing Disclosure with a tax advisor before signing, and plan ahead for filing. For the latest official guidance, visit IRS.gov and download Publications 530 and 936.
This guide is for informational purposes only and is not tax advice. Tax laws can change, and your situation may vary—always verify with a qualified tax professional or the IRS. Happy homebuying and tax saving!