Home Buying
Deductions for new homeowners and home purchases
Showing 40 of 949 questions
Are mortgage points tax deductible?
Mortgage points are generally tax deductible in the year paid if you meet IRS requirements, including using the loan to buy or improve your main home and meeting the cash method test. Each point equals 1% of your loan amount — on a $400,000 mortgage, 2 points costs $8,000 and could save you $1,760-2,960 in taxes depending on your bracket.
Can I deduct closing costs when I buy a house?
Most closing costs cannot be deducted immediately when buying a house. However, mortgage interest points are deductible in the year paid (if you meet IRS requirements), and other costs like property taxes and mortgage interest become ongoing deductions. Real estate taxes paid at closing can be deducted on Schedule A if you itemize.
Can I deduct home improvements on my taxes?
Most home improvements cannot be deducted immediately but are added to your home's cost basis, reducing capital gains when you sell. Only energy-efficient improvements qualify for immediate tax credits up to $3,200 per year through 2032.
Can I deduct a loss on selling investment property?
Yes, you can deduct losses on selling investment property as capital losses. However, capital losses are limited to $3,000 per year against ordinary income, with excess losses carried forward indefinitely. Net capital losses offset capital gains dollar-for-dollar with no annual limit.
Can I deduct a loss on selling my primary residence?
No, you cannot deduct a loss on selling your primary residence. The IRS treats personal residence sales as personal expenses, not deductible business losses. However, you may qualify for up to $250,000 ($500,000 if married filing jointly) in tax-free gains on future home sales under Section 121 exclusion rules.
Can I deduct moving expenses for a new job?
Moving expenses are generally NOT deductible for most taxpayers as of 2018. The Tax Cuts and Jobs Act suspended the moving expense deduction through 2025 (extended through 2026), except for active-duty military members. A typical job-related move costing $5,000 provides zero federal tax benefit for civilians.
Can I deduct PMI (private mortgage insurance)?
Yes, PMI is generally deductible as mortgage interest if your income is under $109,000 (single) or $54,500 (married filing separately). The average PMI payment is $200-300 monthly, potentially saving $500-1,500 annually in taxes depending on your bracket.
Can I deduct property taxes on my home?
Yes, you can deduct property taxes paid on your primary residence and vacation homes, but only up to $10,000 total for all state and local taxes (SALT) combined. For 2026, the average homeowner pays $3,800 in property taxes annually, making this a valuable deduction for most families.
Can I do a 1031 exchange from a rental to a new rental?
Yes, you can use a 1031 exchange to sell one rental property and buy another rental property while deferring capital gains taxes. According to IRC Section 1031, both properties must be held for investment purposes, and you have 45 days to identify replacement properties and 180 days to complete the exchange.
Do I have to pay taxes on the profit from selling my house?
Most homeowners pay no taxes on home sale profits thanks to the home sale exclusion. Single filers can exclude up to $250,000 in gains, and married couples can exclude up to $500,000, provided they meet the 2-out-of-5-year ownership and residency requirements.
What are the exceptions to the 2-year home sale exclusion rule?
The IRS recognizes 8 main exceptions to the 2-year rule: job relocation (50+ miles), health issues requiring medical care, divorce/separation, natural disasters, unemployment, multiple births, terrorist attacks, and involuntary conversion. These exceptions allow partial exclusions worth $125,000-$415,000 depending on circumstances and filing status.
What is the home office recapture when selling my home?
Home office depreciation recapture requires you to pay taxes on the depreciation you previously claimed, typically at 25% (maximum rate). If you claimed $15,000 in depreciation over 5 years, you'd owe roughly $3,750 in recapture taxes when selling, even if your overall gain qualifies for the capital gains exclusion.
Can I get the home sale exclusion if I lived there less than 2 years?
You may qualify for a partial home sale exclusion if you lived in your home less than 2 years due to specific unforeseen circumstances. The IRS allows prorated exclusions (up to $125,000-$250,000) for job changes, health issues, or other qualifying hardships, even if you only lived there 12 months.
Can I exclude gain on selling my home if I used it as a rental?
You can partially exclude gain from selling your home even if you used it as a rental, but you must pay tax on depreciation claimed (up to 25% rate) and may lose some of the $250,000/$500,000 exclusion. If you rented it for 2 of the last 5 years, you'd lose 40% of your exclusion eligibility.
How do home improvements increase my cost basis?
Home improvements that add value, prolong your home's useful life, or adapt it to new uses increase your cost basis dollar-for-dollar. If you bought a home for $300,000 and spent $50,000 on qualifying improvements, your cost basis becomes $350,000, potentially saving you $7,500-$11,100 in capital gains tax when you sell.
How do I calculate my home's cost basis for tax purposes?
Your home's cost basis starts with your purchase price plus eligible closing costs (typically $5,000-$15,000), then add capital improvements over time. For a $400,000 home with $10,000 closing costs and $50,000 in improvements, your basis would be $460,000 — reducing capital gains by $60,000 when you sell.
How do I track my home's cost basis for future sale?
Your home's cost basis starts with purchase price plus buying costs, then increases with capital improvements like renovations. Track everything: a $300,000 home with $50,000 in improvements has a $350,000 basis. When you sell for $450,000, you owe tax on only $100,000 in gains, not $150,000.
How does a 1031 exchange work for investment property?
A 1031 exchange lets you defer capital gains taxes by reinvesting sale proceeds from investment property into similar property within 180 days. You must identify replacement property within 45 days and use a qualified intermediary. This can defer taxes on gains of $50,000, $500,000, or more indefinitely.
How does depreciation recapture work when selling rental property?
Depreciation recapture taxes all depreciation you claimed (or should have claimed) on rental property at a 25% rate when you sell. If you claimed $50,000 in depreciation over 10 years, you'll owe $12,500 in recapture tax plus capital gains on any remaining profit.
How does an installment sale of property work?
An installment sale spreads capital gains tax over the years you receive payments, rather than paying all taxes upfront. You calculate a gross profit percentage (gain ÷ sale price), then apply that percentage to each payment received. For example, on a $500,000 sale with $200,000 gain (40% gross profit), you'd pay capital gains tax on 40¢ of every dollar received.
How much mortgage interest can I deduct on my taxes?
You can deduct mortgage interest on up to $750,000 in mortgage debt ($375,000 if married filing separately). For a $400,000 mortgage at 7% interest, that's about $28,000 deductible in year one — but only if you itemize and your total itemized deductions exceed the $30,000 standard deduction for married couples.
How much profit can I exclude when selling my home?
You can exclude up to $250,000 of profit (single filers) or $500,000 (married filing jointly) when selling your primary residence, provided you owned and lived in the home for at least 2 of the past 5 years. The exclusion is reduced proportionally if you don't meet the full requirements.
Is homeowners insurance tax deductible?
Homeowners insurance is generally NOT tax deductible for personal residences. However, if you use part of your home for business (home office), you can deduct a percentage equal to your business use. For example, if your home office is 10% of your home and insurance costs $2,400/year, you can deduct $240.
Is mortgage interest tax deductible?
Yes, mortgage interest is tax deductible on loans up to $750,000 in principal balance for homes purchased after December 15, 2017. For older mortgages, the limit is $1 million. You must itemize deductions to claim it, and it applies to both primary and secondary homes combined.
What is the partial home sale exclusion?
The partial home sale exclusion allows you to exclude some gain even if you didn't live in your home for the full 2 years. You calculate it as (months of qualifying use ÷ 24 months) × full exclusion amount. If you lived there 12 months, you'd get 50% of the $250,000 or $500,000 exclusion.
How does selling a home with a home office affect my exclusion?
You can still claim the full $250,000/$500,000 capital gains exclusion when selling a home with a home office, but you must pay depreciation recapture taxes on any depreciation claimed. For example, if you claimed $8,000 in depreciation, you'll owe about $2,000 in recapture taxes even if your $80,000 gain is otherwise excluded.
What closing costs can I add to my home's cost basis?
You can add title insurance, recording fees, survey costs, legal fees, and inspection costs to your basis — typically $5,000-$15,000 total. However, loan-related costs like origination fees, appraisals, and credit reports cannot be added to basis and are treated as mortgage interest deductions instead.
What energy credits can I claim for home improvements?
You can claim up to $3,200 annually in energy credits for qualifying improvements like heat pumps, windows, and insulation. Solar panels qualify for a separate 30% credit with no annual limit through 2032. These are credits, not deductions, meaning dollar-for-dollar tax reduction.
What is the 25% depreciation recapture tax rate?
The 25% depreciation recapture rate is a special federal tax rate that applies to all depreciation claimed on real estate when you sell. It's higher than most long-term capital gains rates (0%, 15%, 20%) but lower than ordinary income rates (up to 37% in 2026).
What is the home sale capital gains exclusion?
The home sale capital gains exclusion allows homeowners to exclude up to $250,000 (single) or $500,000 (married filing jointly) of profit from selling their primary residence from taxable income, provided they owned and lived in the home for at least 2 of the past 5 years.
What is a like-kind exchange?
A like-kind exchange lets you swap investment property for similar property without immediate tax consequences. Any rental property can be exchanged for any other rental property — a $400,000 duplex can be exchanged for a $400,000 office building. About 40% of commercial real estate transactions use like-kind exchanges.
What is the mortgage interest deduction limit for 2026?
The mortgage interest deduction limit is $750,000 in mortgage debt for married filing jointly ($375,000 for married filing separately). This applies to mortgages taken after December 15, 2017. Mortgages from before that date are grandfathered at the old $1 million limit until refinanced or the home is sold.
What is a reverse 1031 exchange?
A reverse 1031 exchange lets you buy your replacement property before selling your current property, using an Exchange Accommodation Titleholder (EAT) to temporarily hold one property. You still have 45 days to identify which property to sell and 180 days to complete the exchange, but costs typically run $15,000-$25,000 more than forward exchanges.
What is a seller-financed mortgage and how is it taxed?
A seller-financed mortgage means the property seller acts as the lender. For tax purposes, the seller typically reports the sale as an installment sale, paying capital gains tax on payments received each year rather than upfront. Interest received is taxed as ordinary income, while the buyer can usually deduct mortgage interest just like a traditional loan.
What is the 2-out-of-5-year rule for home sale exclusion?
The 2-out-of-5-year rule requires you to own and live in your home as your primary residence for at least 24 months (non-consecutive) during the 5 years ending on your sale date. This qualifies you to exclude up to $250,000 (single) or $500,000 (married) in capital gains from taxes.
What is the difference between origination points and discount points?
Origination points are lender fees (not deductible), while discount points are prepaid interest that reduce your loan rate and are fully deductible. On a $400,000 mortgage, 1 discount point costs $4,000 but can save $50+ monthly and provides an immediate tax deduction.
What is the SALT deduction cap for property taxes?
The SALT (state and local tax) deduction cap is $10,000 per year for all state and local taxes combined, including property taxes, state income taxes, and local taxes. This limit applies regardless of filing status, meaning both single filers and married couples face the same $10,000 ceiling.
What records should I keep for home improvement costs?
Keep receipts, contracts, permits, and before/after photos for all home improvements until 3 years after selling your home. The average homeowner has $50,000-$75,000 in improvements over 10+ years—proper records can save $11,000-$27,750 in capital gains tax depending on your tax bracket.
What tax deductions do I get when I buy a house?
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.
Which home improvements increase my cost basis?
Any improvement that adds value, prolongs your home's life, or adapts it to new uses increases cost basis. This includes renovations ($25,000+ kitchen remodel), additions, major system replacements, and permanent installations — but not routine repairs or maintenance.