When buying a house, you can't deduct most purchase costs, but you can deduct mortgage interest, points (prepaid interest) if you meet IRS rules, and your share of property taxes, but these are itemized deductions, meaning you only benefit if your total itemized deductions exceed the standard deduction. Other costs like appraisal, inspection, and title fees add to your home's cost basis but aren't immediately deductible.
Deductible house-related expenses
As a newly minted homeowner, you may be wondering if there's a tax deduction for buying a house. Unfortunately, most of the expenses you paid when buying your home are not deductible in the year of purchase. The only tax deductions on a home purchase you may qualify for is the prepaid mortgage interest (points).
The First-Time Homebuyer Tax Credit is equal to 10 percent of the home's purchase price, capped at a maximum dollar amount set by law. In 2025, the maximum credit is $15,000 for most buyers, or $7,500 if you are married and file taxes separately. The maximum amount does not stay fixed.
A recent tax law ("One Big Beautiful Bill") introduced a new $6,000 bonus deduction for Americans aged 65 and older, available for tax years 2025-2028, reducing taxable income, not the tax itself, with income phase-outs starting at $75,000 MAGI for singles and $150,000 for joint filers. This deduction adds to existing standard deductions, provides up to $12,000 for couples, and requires a Social Security number and filing status other than Married Filing Separately.
The main tax breaks for buying a house are deducting mortgage interest (on up to $750k debt for newer loans) and property taxes, plus potential deductions for "points" (prepaid interest) and capital gains exclusion when selling, though there's no federal first-time homebuyer tax credit currently active; you must itemize deductions (not take the standard deduction) to benefit, with lender Form 1098 helping report interest paid.
Generally, deductible closing costs are those for interest, certain mortgage points and deductible real estate taxes. Many other settlement fees and closing costs for buying the property become additions to your basis in the property and part of your depreciation deduction, including: Abstract fees.
For most homeowners, the biggest tax benefit of owning a home in California comes from the mortgage interest deduction. Your mortgage lender will provide you with an IRS Form 1098 at the end of each year that itemizes how much you paid in interest on your loan.
A tax deduction subtracts a certain amount from your taxable income. First-time homebuyers may be eligible for certain tax breaks, including mortgage interest deductions, origination fee deductions and property tax deductions.
According to the rule, an expense is incurred and deductible in the tax year if it meets the “all-events test” and the economic performance in question occurs within 8½ months after the close of the tax year. The all-events test is threefold: All events have occurred that establish liability.
Capital Improvements
The section 179 deduction allows taxpayers, other than trusts and estates, to elect to expense a specified amount of the cost of qualifying property purchased for use in a business. For tax years beginning in 2026 the maximum deduction is $2,560,000, (2025, the maximum deduction is $2,500,000).
Many business expenses are 100% deductible, including advertising, employee wages, rent, supplies, and certain business meals like company parties or meals for the public, while personal deductions like student loan interest or charitable donations (depending on the type) can also be fully deductible for individuals. The key is that the expense must be "ordinary and necessary" for your trade or business or meet specific IRS criteria, often differentiating from the 50% rule for client meals.
Taxpayers often make common tax mistakes by omission: not keeping records. If the IRS comes a-knockin', don't be scrambling to compile your records. File or scan and store home office and home improvement receipts and other home-related documents as you go. #7 Forgetting to Report Trackable Capital Gains.
Homeowners may deduct both mortgage interest and property tax payments as well as certain other expenses from their federal income tax if they itemize their deductions. In a comprehensive income tax system, all income would be taxable and all costs of earning that income would be deductible.
When you buy a house, you can deduct the interest you pay on your mortgage loan. This deduction applies to both your primary residence and, in some cases, a second home. The more interest you pay on your mortgage, the larger the potential deduction, which can lead to a lower tax bill or a larger tax refund.
6 Tax Deductions When Selling Your Home
Mortgage amount
Taxpayers can deduct the interest paid on qualified residences for up to $750,000 in total mortgage debt (the limit is $375,000 if married and filing separately). Any interest paid on first, second or home equity mortgages over this amount is not tax-deductible.
The short answer: Yes, closing costs can be included or rolled into your mortgage. Also known as financing your closing costs, rolling closing costs into your mortgage can provide short-term financial relief, as you don't need to pay them upfront at closing.
Company ownership can be advantageous for the most part where it is not necessary to extract all the profits. If profits and gains are to be retained for investment or paying down debt, or to be protected for future generations, then they can be an extremely tax efficient way of owning property.
The Department of Community Services and Development encourages Californians earning under $31,950 a year to file their taxes to claim the California Earned Income Tax Credit (CalEITC), a cash-back tax credit, and receive a larger tax refund.