Buying a home is a big milestone — exciting, life-changing, and let’s be honest, expensive. But here’s some good news: owning a home can also come with serious perks at tax time. If you’ve been wondering how a mortgage affects your taxes, what the mortgage interest deduction is, or whether buying a home can save you money on taxes, you’re in the right place.
Let’s break down the most important tax benefits that come with homeownership — in plain English.
One of the biggest tax breaks available to homeowners is the mortgage interest deduction. In the early years of your mortgage, most of your payment goes toward interest — and fortunately, that interest is usually tax-deductible.
So, how does it work?
Each year, your lender will send you Form 1098, which shows how much mortgage interest you paid. If you choose to itemize your deductions (instead of taking the standard deduction), you can subtract that interest from your taxable income — potentially lowering your tax bill by thousands.
Here are the basics:
Along with mortgage interest, you can also deduct state and local property taxes. This is another valuable way to reduce your taxable income.
However, there’s a limit:
The IRS allows you to deduct up to $10,000 ($5,000 if married filing separately) for the total of all state and local taxes (SALT) — which includes property taxes, income taxes, and sales taxes combined.
Even with the cap, this deduction can offer meaningful savings.
If you paid “points” to lower your mortgage interest rate when buying your home, there may be an extra tax break waiting for you.
Check your closing disclosure or loan estimate to see if you paid points — many buyers do without realizing it.
If your down payment was less than 20%, you’re likely paying private mortgage insurance (PMI). This used to be deductible, but here’s the catch:
Note: The PMI deduction expired at the end of 2021 and hasn’t been renewed for 2025 (as of now). Keep an eye on tax law changes or ask your tax advisor if Congress brings this one back.
If you use part of your home exclusively and regularly for work — and you’re self-employed — you may qualify for the home office deduction.
That means you can deduct a portion of your:
Important: This deduction is only available if you’re self-employed. Unfortunately, employees working remotely for an employer don’t qualify under current tax rules.
Thinking about going green? Making your home more energy-efficient isn’t just good for the planet — it’s good for your wallet, too.
Upgrades like:
…can qualify for federal tax credits, which directly reduce the amount of tax you owe — dollar for dollar. These incentives change often, so check the IRS Energy Credits page for the latest updates.
Here’s one of the most powerful tax benefits of all — and it kicks in when you sell.
If you’ve lived in your home for at least 2 out of the last 5 years, you can exclude up to:
This means you might not pay any taxes on hundreds of thousands of dollars in capital gains. That’s a massive benefit, and one of the best long-term financial advantages of owning a home.
To use most of these deductions — like mortgage interest and property taxes — you’ll need to itemize your return. But is it worth it?
For 2024, the standard deduction is:
If your total itemized deductions are higher than the standard deduction, itemizing can save you more money. Otherwise, the standard deduction might be the simpler and more beneficial route.
Owning a home comes with many rewards, and the tax benefits are a pretty sweet bonus. While you shouldn’t buy a house just for the deductions, these breaks can definitely ease the financial load and help you build long-term wealth.
From the mortgage interest deduction to the capital gains exclusion, tax rules are designed to reward homeowners — but they do change from time to time. So it’s always a good idea to consult a tax professional to make sure you’re maximizing what you’re entitled to.
Here’s to smart choices, dream homes, and bigger tax refunds!
Disclaimer: This article is for general information only and isn’t tax or financial advice. Always check with a tax professional for guidance on your personal situation.
