Homeownership can increase your tax refund, but only if you itemize deductions instead of taking the standard deduction
When you own a home, you gain access to deductions that renters cannot claim. The two biggest are the mortgage interest deduction and the property tax deduction. If the total of these deductions plus other itemized deductions exceeds the standard deduction for your filing status, you will report a larger deductible amount to the IRS. A larger deductible amount can result in a smaller tax bill and a larger refund—but only if you actually itemize instead of taking the standard deduction.
The standard deduction for 2024 is $14,600 for single filers and $29,200 for married filing jointly. If your mortgage interest, property taxes, and other deductions add up to less than these amounts, itemizing will not help you. Many homeowners find that the standard deduction is still the better choice, especially in the first few years of a mortgage when property taxes may be lower than in high-tax states.
Key Takeaways
- Mortgage interest and property taxes are the main homeowner deductions, but they only reduce your refund if they exceed the standard deduction for your filing status.
- The standard deduction for 2024 is $14,600 for single filers and $29,200 for married filing jointly, and most homeowners do not exceed this amount.
- State and local tax deductions (SALT) are capped at $10,000 per year, which limits the benefit for homeowners in high-tax states.
- You must itemize deductions on Schedule A of Form 1040 to claim mortgage interest and property tax deductions; the IRS will not let you claim both itemized and standard deductions.
- A larger deduction lowers your taxable income, which can increase your refund if you had taxes withheld from your paycheck during the year.
Mortgage interest deduction and how it works
The mortgage interest deduction lets you deduct the interest portion of your mortgage payments, not the principal. In the early years of a 30-year mortgage, most of each payment goes toward interest, so this deduction can be substantial. For example, on a $400,000 mortgage at 6.5% interest, you might pay $25,000 in interest in the first year alone.
The deduction applies only to mortgages on your primary residence and one other property (usually a vacation home), and only on loans up to $750,000 of principal. If you took out your mortgage before December 16, 2017, the limit is $1,000,000. You cannot deduct interest on home equity lines of credit or second mortgages unless the borrowed money was used to buy, build, or improve the home.
To claim this deduction, your mortgage lender sends you a Form 1098 each January showing how much interest you paid in the previous year. You report this amount on Schedule A when you itemize.
Property tax deduction and the $10,000 SALT cap
You can deduct property taxes you paid on your home, but there is a federal cap. The SALT deduction (state and local taxes) combines property taxes, state income taxes, and sales taxes into a single $10,000 annual limit. This means if you live in a high-tax state and pay $15,000 in property taxes alone, you can only deduct $10,000 of the total.
The $10,000 cap has been in place since 2018 and is scheduled to expire at the end of 2025, after which the limit may change. Homeowners in states like California, New York, New Jersey, and Illinois often hit this cap and cannot deduct all their property taxes. Homeowners in low-tax states may not reach the cap at all.
Your county assessor's office or property tax bill shows your annual property tax amount. You report this on Schedule A along with any state income tax or sales tax you choose to deduct, up to the $10,000 total.
When itemizing actually increases your refund
Itemizing increases your refund only if two things are both true: your itemized deductions exceed the standard deduction, and you had taxes withheld from your paychecks during the year. The deduction itself does not create a refund—it reduces your taxable income, which lowers your tax bill. If you overpaid taxes through withholding, the difference comes back as a refund.
Example: You are married filing jointly with $32,000 in itemized deductions (mortgage interest of $18,000 plus property taxes of $14,000). The standard deduction is $29,200, so itemizing saves you $2,800 in taxable income. If your tax rate is 22%, that saves you $616 in taxes. If your employer withheld $5,000 from your paychecks and you owe $4,384 in total tax, your refund is $616 larger than it would have been if you had taken the standard deduction.
If you had no withholding or owed more tax than was withheld, a larger deduction does not create a refund—it just reduces what you owe. The refund depends on the gap between what you paid and what you owe, not on the size of your deductions.
Other homeowner deductions that may help
Beyond mortgage interest and property taxes, homeowners can sometimes deduct home office expenses if they use part of the home exclusively for business, or energy-efficient home improvements under certain conditions. These deductions are less common and have specific rules, but they can add to your itemized total.
Homeowners who paid mortgage insurance premiums (PMI) in 2024 may be able to deduct those premiums as well, though this deduction phases out at higher income levels and is not available to all filers. Check your mortgage statement or Form 1098 to see if PMI was paid and whether you meet the income limits.
How to decide whether to itemize or take the standard deduction
Add up your mortgage interest (from Form 1098), property taxes (from your tax bill), and any other deductions you plan to claim. If the total exceeds the standard deduction for your filing status, itemizing will lower your taxable income. If the total is less, take the standard deduction instead—it will give you a larger deduction without the extra work of tracking receipts and filing Schedule A.
Many tax software programs will calculate both scenarios and show you which one results in a lower tax bill. If you are close to the standard deduction amount, it is worth running the numbers both ways. Some homeowners benefit from itemizing in years when they pay off a large portion of principal (which does not count as deductible interest) or when property taxes spike, and from taking the standard deduction in other years.
What happens to your refund after you file
Once you file your tax return with either itemized or standard deductions, the IRS processes your return and calculates your refund based on the total tax you owe minus what was withheld. If you itemized and your deductions were larger than the standard deduction, your taxable income is lower, your tax bill is lower, and your refund is larger—assuming you had withholding during the year.
The IRS typically issues refunds within 21 days of accepting your return if you file electronically and choose direct deposit. If you file by mail or request a check, the timeline is longer. You can track your refund status on the IRS website using the "Where's My Refund?" tool, which updates every 24 hours after your return is accepted.
Frequently Asked Questions
Does buying a home this year automatically increase my tax refund?
Not automatically. You will only see a refund increase if your mortgage interest and property taxes exceed the standard deduction for your filing status, and only if you had taxes withheld from your paychecks during the year. Many first-time homebuyers find the standard deduction is still larger, especially if they bought late in the year.
Can I deduct property taxes if I pay them to my mortgage lender?
Yes. Your lender may collect property taxes as part of your monthly escrow payment and pay them on your behalf. The amount paid appears on your Form 1098, and you can deduct it on Schedule A, subject to the $10,000 SALT cap. The deduction is the same whether you pay directly or through escrow.
What if I paid off my mortgage early—do I lose the deduction?
Once you pay off the mortgage, you no longer have mortgage interest to deduct in future years. However, you can still deduct property taxes. If your property tax deduction alone does not exceed the standard deduction, you will likely switch to taking the standard deduction instead of itemizing.
Does refinancing my mortgage change my deduction?
Refinancing does not change the deduction itself, but it may change the amount of interest you pay. A lower interest rate means less interest paid each year, which means a smaller mortgage interest deduction. The Form 1098 you receive after refinancing will show the actual interest paid that year.
If I own a rental property, can I deduct the mortgage interest?
Rental property mortgage interest is deducted differently—it goes on Schedule E (rental income and loss), not on Schedule A with itemized deductions. Rental deductions are not subject to the standard deduction comparison and work under their own rules.