The deduction everyone hears about
Mortgage interest on a loan secured by your primary residence is deductible, subject to a cap on total acquisition debt. In the early years of a mortgage, interest is the large majority of your payment, so the potential deduction is at its biggest exactly when you're a new buyer.
The catch: it only helps if your itemized deductions exceed the standard deduction. Many first-time buyers with modest loan balances never clear that bar, which means their tax bill doesn't change at all.
Property taxes and the SALT cap
State and local taxes, including property taxes, are deductible only up to a combined annual cap. In high-tax states that cap is reached quickly, which further limits the itemizing benefit for many households.
Points and origination fees
Discount points paid to buy down your rate on a purchase are generally deductible in the year paid when certain conditions are met. On a refinance they're typically amortized over the life of the loan. Origination charges that are payment for services rather than interest are not deductible.
Mortgage Credit Certificates — the underused one
An MCC is issued by state and local housing finance agencies and converts a portion of your annual mortgage interest into a dollar-for-dollar federal tax credit. A credit reduces tax owed directly, which makes it far more valuable per dollar than a deduction — and it works whether or not you itemize.
MCCs must generally be obtained at the time of purchase, not afterward. If your state offers one and you qualify, ask your lender before closing.
What isn't deductible
- Homeowners insurance premiums
- HOA (homeowners association — a neighborhood or condo group that charges a monthly or yearly fee and sets community rules; lenders count that fee in your payment) dues on a primary residence
- Most closing costs, including title fees and appraisal
- Principal payments
- General repairs and maintenance
Improvements aren't deductible either, but keep every receipt — they raise your cost basis and can reduce capital gains when you sell.
The honest bottom line
Tax benefits are a nice tailwind, not a reason to buy. Build your decision on the monthly payment you can carry. If the deduction materializes, treat it as a bonus. And because everyone's situation differs, run the specifics past a tax professional — this is education, not tax advice.
Frequently asked questions
Will buying a home lower my taxes?
Only if your itemized deductions exceed the standard deduction, or if you hold a credit like an MCC. Plenty of new homeowners see no change.
Is PMI deductible?
Deductibility of mortgage insurance premiums has come and gone with legislation and has been subject to income phase-outs. Confirm current-year treatment with a tax professional.
Can I deduct closing costs?
Generally no, with the notable exception of prepaid interest and qualifying discount points. Most other costs get added to your basis.
What records should I keep?
Your closing disclosure, annual Form 1098 from your servicer, property tax statements, and receipts for every capital improvement you ever make.
Run your numbers
Take what you just learned and apply it to your file.