You cannot get a tax refund just for buying a house, but you may reduce your taxes owed through deductions or credits in the year you buy

A tax refund is money the government returns to you because you overpaid during the year. Buying a house does not trigger a refund by itself. However, homebuyers can sometimes lower the amount of tax they owe in the year of purchase through the mortgage interest deduction, the property tax deduction, or the first-time homebuyer credit (which varies by state). The difference between owing less tax and receiving a refund matters: if these deductions bring your tax bill down but you still owe money overall, you get no refund. If they bring your bill below what you already paid in withholding, you receive the difference back.

The most common tax benefit for homebuyers is deducting mortgage interest paid during the year. You can only claim this if you itemize deductions on your tax return instead of taking the standard deduction. For most homebuyers, especially those buying their first home, itemizing does not result in a larger deduction than the standard deduction, so the mortgage interest deduction provides no actual tax benefit. You will need to run the numbers on your specific situation, usually with a tax preparer or tax software, to know whether itemizing makes sense for you.

Key Takeaways

  • Buying a house does not automatically create a tax refund, but mortgage interest and property taxes paid in the year of purchase may lower your tax bill if you itemize deductions.
  • The standard deduction is higher than most homeowners' itemized deductions, so many new homebuyers see no tax benefit from buying.
  • Some states offer first-time homebuyer tax credits that reduce your state tax bill in the year you purchase; these vary widely by state and have income limits.
  • Mortgage interest deductions and property tax deductions appear on Schedule A of your federal tax return, not on your main 1040 form.
  • If you refinance your mortgage, you cannot deduct points paid on the refinance in the year you pay them; you must deduct them over the life of the new loan.

Mortgage interest deduction and when it actually saves you money

The mortgage interest deduction allows you to subtract the interest portion of your mortgage payments from your taxable income, but only if you itemize deductions. In 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. Your itemized deductions—mortgage interest, property taxes, state income taxes, charitable donations, and medical expenses—must add up to more than the standard deduction for itemizing to lower your tax bill.

For a homebuyer with a $400,000 mortgage at 7 percent interest, the first-year interest payment is roughly $28,000. Add property taxes (which vary by location but average $1,200 to $2,400 per year in most states) and you might reach $30,000 in deductions. For a married couple, this exceeds the standard deduction, so itemizing makes sense. For a single person, it still falls short of $14,600 in most cases. You report mortgage interest on Schedule A (Form 1040), not on the main return itself.

One common mistake: you cannot deduct the principal portion of your mortgage payment, only the interest. In the early years of a mortgage, most of each payment goes to interest, so the deduction is larger then. As years pass and you pay down principal, the interest portion shrinks and so does the deduction.

Property tax deduction for homeowners

You can deduct property taxes paid on your home in the year you pay them, but there is a federal cap. The SALT deduction (state and local taxes) limits your combined deduction of state income tax, state sales tax, and property tax to $10,000 per year. This cap applies whether you are single or married filing jointly. If your state has high income taxes and you also pay high property taxes, you will hit this cap and cannot deduct the excess.

Property taxes are assessed by your county or municipality and appear on your property tax bill or statement. You report them on Schedule A along with mortgage interest. If you bought the house partway through the year, you may have paid property taxes for only part of the year, or the seller may have paid a portion and you reimbursed them at closing. You can only deduct the taxes you actually paid, not taxes the seller paid.

First-time homebuyer credits at the state level

Some states offer tax credits (not deductions) for first-time homebuyers in the year of purchase. A credit reduces your tax bill dollar-for-dollar, which is more valuable than a deduction. However, these programs are not uniform: some states offer them, others do not, and the rules change frequently. A few examples: New York offers a credit of up to $3,000 for first-time buyers; Illinois offers a credit of up to $300; some states offer nothing.

To find out whether your state has a first-time homebuyer credit, search "[your state] first-time homebuyer tax credit" or contact your state tax authority directly. If a credit exists, you will claim it on your state tax return (not your federal return) and you will need to provide proof of purchase, such as a closing statement or deed. The income limits and purchase price limits vary by state, so you may not meet the requirements even if the credit exists.

Points paid at closing and how they affect your taxes

When you take out a mortgage, you may pay points (also called discount points) to lower your interest rate. One point equals 1 percent of the loan amount. Points are a form of prepaid interest. In the year you purchase, you can deduct points paid on your primary mortgage in full, but only if certain conditions are met: the loan must be for your main home, the points must be a standard business practice in your area, and the points cannot exceed what is typical (usually 1 to 3 percent of the loan).

If you refinance your mortgage and pay points on the new loan, you cannot deduct them all in the year you pay them. Instead, you must deduct them over the life of the new loan. For example, if you pay $6,000 in points on a 30-year refinance, you deduct $200 per year for 30 years. This is one reason refinancing can have different tax consequences than an original purchase.

How to report home purchase tax benefits on your return

Mortgage interest, property taxes, and points all go on Schedule A (Form 1040), which is the itemized deductions form. You only file Schedule A if you itemize; if you take the standard deduction, you do not report these items at all. Your mortgage lender sends you a Form 1098 each January showing the interest and points you paid in the prior year. Use this form to fill in Schedule A.

Property taxes appear in the "Taxes You Paid" section of Schedule A, subject to the $10,000 SALT cap. Mortgage interest and points appear in the "Home Mortgage Interest and Points" section. If you are using tax software, it will walk you through these sections and calculate whether itemizing saves you money compared to the standard deduction. If you are working with a tax preparer, bring your Form 1098 and property tax statements to your appointment.

When a home purchase results in a refund versus a bill

Whether you receive a refund or owe money depends on how much tax was withheld from your paychecks during the year, not on the home purchase itself. If you bought a house in March and your employer withheld $8,000 in federal tax over the year, but your actual tax bill (after all deductions) is $6,000, you receive a $2,000 refund. The home purchase deductions lowered your bill from, say, $7,000 to $6,000, but the refund comes from the overpayment of withholding, not from the purchase.

Conversely, if you bought a house and your deductions are small (because you do not itemize or because your mortgage is new and interest is high but still below the standard deduction), you might owe money. The purchase itself did not cause the bill; your overall tax situation did. This is why it is important to run the numbers before you buy: you can adjust your withholding during the year if you expect a large bill or refund.

Frequently Asked Questions

Can I get a tax refund just for buying a house?

No. A refund is money returned because you overpaid tax during the year. Buying a house may lower your tax bill through deductions or credits, but that is different from a refund. If the deductions lower your bill below what you already paid in withholding, you receive the difference as a refund—but the refund comes from overpayment, not from the purchase itself.

Do I have to itemize deductions to benefit from buying a house?

Yes, to deduct mortgage interest or property taxes. However, most homebuyers do not itemize because the standard deduction is higher than their combined mortgage interest and property taxes. You should run the numbers with tax software or a preparer to see whether itemizing makes sense in your situation.

What if I bought the house partway through the year?

You can only deduct mortgage interest and property taxes for the months you owned the home and paid them. If you bought in June, you deduct interest and taxes from June through December. The seller may have paid property taxes for January through May, which you should not deduct.

Does refinancing my mortgage give me the same tax benefits as buying?

Refinancing does not change your mortgage interest deduction—you still deduct the interest you pay. However, points paid on a refinance cannot be deducted in full in the year you pay them; you must deduct them over the life of the new loan. Points on an original purchase can be deducted in full in the year of purchase.

Where do I learn about my state has a first-time homebuyer credit?

Search your state's tax authority website or call their helpline. State credits vary widely and change year to year. Some states offer substantial credits; others offer none. You will need to provide proof of purchase, such as a closing statement, to claim the credit on your state return.