Potential tax benefits of owning a home
Once you become a homeowner, you may qualify for tax deductions. To take advantage of homeowner tax benefits, talk to your tax advisor to find out how to file.
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These mortgage-related items may be tax deductible:
Mortgage interest payments
If you’ve paid interest on a mortgage, it may be tax deductible. When required, your mortgage lender will provide you with an IRS Form 1098 (Mortgage Interest Statement) each year, which will be a useful reference when preparing your income tax return.
In the early years of a conventional fixed-rate mortgage, your monthly payments will primarily go toward interest. That means your mortgage interest deductions have the potential to create more tax savings during these early years.
Real estate (or property) taxes
Real estate taxes are assessed annually by county or local taxing authorities to help pay for public services. They may be deductible for income tax purposes and you should consult your tax advisor to determine how to apply the deduction. As a rule of thumb, you can expect to pay 1-3% of the market value of your home in annual property taxes.
Mortgage (or discount) points
Did you choose to pay mortgage points up front in exchange for a lower interest rate? If so, the amount may be deductible for the year you paid the points if they were paid toward the purchase of a primary residence. If the points are paid for a refinancing of your mortgage, they may be deductible over the life of your mortgage. Learn more about mortgage points. Our points calculator can help you determine if it makes sense for you to pay for points.
These items can’t be deducted:
- Closing costs
- Homeowners, hazard or flood insurance
- Real estate commissions paid to agents
- Home inspections, home appraisals or mortgage application fees
Low-to-moderate income homeowners
If your state considers you to be a low-to-moderate income homeowner, you may be eligible for mortgage interest tax credits for a portion of the interest that the state pays on your behalf. You must obtain a “mortgage credit certificate” from your state or local government prior to obtaining the mortgage. Contact your local government agency for this and other eligibility requirements and for more information about how the credits work.