Quick Answer
Homeowners can deduct mortgage interest up to $750,000 in loan balance, state and local taxes up to $10,000 (SALT cap), and mortgage insurance premiums. Most closing costs like realtor fees, home inspections, and title insurance are not deductible, but property taxes and mortgage points may be.
Best Answer
Robert Kim, Tax Return Analyst
People buying their first home who want to understand all available tax benefits
What home-buying expenses are tax deductible?
As a first-time homebuyer, you can deduct several ongoing homeownership costs, but most one-time closing costs are not deductible. The biggest deductions come from mortgage interest and property taxes, which can save you thousands annually.
The big three: mortgage interest, property taxes, and PMI
Mortgage interest deduction: You can deduct interest on mortgage debt up to $750,000. If you buy a $400,000 home with a 20% down payment ($80,000), your $320,000 mortgage at 7% interest generates about $22,400 in deductible interest the first year — potentially saving you $4,928 if you're in the 22% tax bracket.
Property taxes: Fully deductible up to the $10,000 SALT (state and local tax) cap, which includes property taxes plus state income or sales taxes. On a $400,000 home with 1.2% property tax rate, that's $4,800 annually in deductible property taxes.
Mortgage insurance premiums (PMI): If you put down less than 20%, your PMI is deductible (subject to income limits). PMI on a $320,000 loan typically costs $160-320 per month ($1,920-3,840 annually), all potentially deductible.
What closing costs can I deduct?
Most closing costs are not immediately deductible, but there are important exceptions:
Immediately deductible:
Not deductible:
Added to home's cost basis (reduces capital gains when you sell):
Example: First-year tax benefits on a $400,000 home purchase
Key factors that affect your deductions
What you should do
1. Keep all closing documents — your HUD-1 or Closing Disclosure shows which costs may be deductible
2. Track ongoing expenses — mortgage interest, property taxes, and PMI throughout the year
3. Consider itemizing — run the numbers to see if itemizing beats your standard deduction
4. Plan for next year — these deductions repeat annually as long as you own the home
Use our return scanner to identify potential missed deductions from your home purchase and estimate your tax savings.
Key takeaway: The average homeowner with a $400,000 mortgage saves $6,500+ annually in taxes through mortgage interest and property tax deductions, but you must itemize to claim them.
*Sources: [IRS Publication 936](https://www.irs.gov/pub/irs-pdf/p936.pdf) - Home Mortgage Interest Deduction, [IRS Topic 503](https://www.irs.gov/taxtopics/tc503) - Deductible Taxes*
Key Takeaway: The three main deductions are mortgage interest (up to $750K loan balance), property taxes (up to $10K SALT cap), and PMI, potentially saving $6,500+ annually on a typical $400K home purchase.
Tax deductibility of common home-buying expenses
| Expense | Immediately Deductible | Added to Basis | Not Deductible |
|---|---|---|---|
| Mortgage interest | ✓ | ||
| Property taxes | ✓ | ||
| Mortgage points | ✓ | ||
| PMI premiums | ✓ (income limits) | ||
| Realtor commissions | ✓ | ||
| Home inspection | ✓ | ||
| Title insurance | ✓ | ||
| Recording fees | ✓ | ||
| Attorney fees | ✓ |
More Perspectives
Michelle Woodard, Tax Policy Analyst
People who sold one home and bought another, dealing with multiple properties in one tax year
Moving brings unique deduction opportunities and complications
When you sell one home and buy another in the same tax year, you're dealing with deductions from multiple properties plus potential capital gains exclusions.
Deductions from both properties
You can deduct mortgage interest and property taxes from both your old and new homes for the periods you owned each. If you sold your previous home in June and bought a new one in August:
Capital gains exclusion vs. deductions
If you lived in your previous home for 2 of the last 5 years, you can exclude up to $250,000 (single) or $500,000 (married) in capital gains from the sale. This exclusion is separate from and more valuable than ongoing deductions.
Example: You bought your old home for $300,000, sold for $450,000 (after improvements and selling costs), and bought a new $500,000 home. Your $150,000 gain is completely tax-free under the exclusion, and you still get deductions on your new $400,000 mortgage.
Moving expense considerations
Moving expenses are generally not deductible for most taxpayers (only military moves qualify), but costs added to your home's basis can reduce future capital gains.
What you should do
1. Track both properties' expenses separately for accurate record-keeping
2. Calculate your capital gains exclusion if you sold a primary residence
3. Don't double-count — property taxes paid at closing are deductible, but don't also deduct the same taxes from escrow payments
Key takeaway: Recent movers can deduct expenses from both properties but must track each separately and ensure they qualify for the capital gains exclusion on their sale.
Key Takeaway: Recent movers can deduct expenses from both properties but must track each separately and ensure they qualify for the capital gains exclusion on their sale.
Robert Kim, Tax Return Analyst
People moving from smaller properties to larger homes, often with significantly higher property taxes and mortgage amounts
Upgrading means bigger deductions but watch the caps
Moving from a $250,000 condo to a $500,000 house typically doubles your potential tax deductions, but you need to understand the limitations.
The mortgage interest jump
Upgrading usually means a larger mortgage and more deductible interest. Moving from a $200,000 mortgage (6.5% = $13,000 interest) to a $400,000 mortgage (7% = $28,000 interest) increases your deduction by $15,000 — potentially saving $3,300 more in taxes at the 22% bracket.
Property tax reality check
Larger homes often mean higher property tax bills. A $250,000 condo with $3,000 annual property taxes versus a $500,000 house with $7,500 property taxes. Both amounts are deductible up to the $10,000 SALT cap.
SALT cap strategy: If your state income taxes are low, you can deduct the full property tax amount. But if you pay $8,000 in state income taxes, only $2,000 of property taxes fit under the cap.
HOA fees and special assessments
Regular HOA fees are never deductible, but special assessments for capital improvements may be added to your home's cost basis. Moving from a $200/month condo fee to a $50/month HOA fee saves $1,800 annually (though this isn't a tax deduction — it's just more money in your pocket).
Planning your upgrade timing
If possible, time your home sale and purchase to maximize deductions:
Key takeaway: Upgrading typically doubles your mortgage interest deduction, but higher property taxes may hit the $10,000 SALT cap depending on your state tax situation.
Key Takeaway: Upgrading typically doubles your mortgage interest deduction, but higher property taxes may hit the $10,000 SALT cap depending on your state tax situation.
Sources
- IRS Publication 936 — Home Mortgage Interest Deduction
- IRS Topic 503 — Deductible Taxes
Related Questions
Reviewed by Robert Kim, Tax Return Analyst on February 28, 2026
This content is for educational purposes only and is not a substitute for professional tax advice. Consult a qualified tax professional for advice specific to your situation.