Buying a Home: Tax Deductions for Mortgage Interest & Property Taxes
Buying a home is a huge milestone, but is also exciting, stressful, and full of paperwork. I've worked with many new homeowners, and one of the first things they ask around tax time is: “Does this help me on my taxes?”
The short answer: it can, especially if you're itemizing your deductions. Two of the biggest tax benefits for homeowners are the mortgage interest deduction and the property tax deduction. And while they don't apply to everyone, they can make a real difference, especially in those first few years of homeownership.
I always recommend that new homeowners bring their mortgage documents and property tax statements to our first tax meeting after they buy. That way, we can take a close look at whether it makes sense to itemize and what kind of savings we might find.
Mortgage Interest Deduction
This is the big one. If you took out a mortgage to buy your home, you can usually deduct the interest you paid on that loan. In the early years of a mortgage, a big chunk of your monthly payment goes toward interest rather than principal, which means your deduction could be significant.
You'll get a Form 1098 from your lender showing how much interest you paid during the year. That's the number you'll use when preparing your return.
There are a few limits to keep in mind:
- You can deduct interest on up to $750,000 of mortgage debt (or $1 million if your mortgage started before December 16, 2017).
- The home must be your primary or secondary residence.
Mortgage Points: If you paid points to get a better interest rate when buying your home, you may be able to deduct them (either all at once or over time, depending on the situation). Please see Publication 936.
Property Tax Deduction
You may also be able to deduct state and local property taxes you paid on your home. These are usually included in your monthly mortgage payment or paid directly to your local tax authority.
Here's the catch: there's a limit. You can deduct up to $10,000 total for state and local taxes (including property taxes, state income tax, or sales tax). For some homeowners, especially in high-tax areas, that limit can come into play.
Still, for many of my clients, this deduction adds meaningful savings on top of the mortgage interest deduction.
