5 Essential Tax Deductions Every New Homeowner Must Know
Congratulations! You’ve finally closed on your first home. It’s a huge milestone, but now that you’re done dealing with realtors and moving trucks, it’s time to face a new reality: homeownership changes everything about your tax return.
As a renter, filing taxes was probably simple—just take the standard deduction and call it a day. But now, your house key doubles as a potential key to major tax savings. The trick is knowing which expenses you can deduct and, more importantly, whether you should itemize those deductions.
We’re breaking down the five most crucial tax benefits available to new homeowners.
1. The Heavyweight Champion: Mortgage Interest
When you first start paying your mortgage, the vast majority of your monthly payment goes toward interest, not the principal loan balance. Fortunately, that painful interest cost is also your biggest tax break.
How it Works
The interest you pay on debt used to buy, build, or substantially improve your primary or secondary home is deductible.
Key Limits
For mortgages taken out after December 15, 2017, you can deduct the interest paid on mortgage debt up to $750,000 ($375,000 if married filing separately). If your mortgage is older than that, a more generous $1 million limit applies.
Find the Number
Your lender will send you Form 1098 in January, which clearly states the total amount of mortgage interest you paid during the year. This is the exact number you’ll need for your Schedule A.
2. The Local Cost: State and Local Taxes (SALT Deduction)
Homeownership means paying property taxes, often bundled into your monthly mortgage escrow payment. These payments are generally deductible, but there’s a critical catch established by the 2017 Tax Cuts and Jobs Act (TCJA).
How it Works
You can deduct certain state and local taxes, including real estate property taxes and either state/local income taxes or state/local sales taxes (you choose the one that benefits you most).
The Cap
The total combined deduction for all State and Local Taxes (SALT) is capped at $10,000 ($5,000 if married filing separately). This means that even if you live in a high-tax area and pay $15,000 in property taxes, you can only deduct $10,000 of it.
Find the Number
Keep your closing disclosure (Form CD) to capture the property taxes paid at closing, and track the property tax payments your mortgage servicer makes on your behalf throughout the year.
3. The Upfront Cost: Mortgage Points
Did you pay “points” or “origination fees” when you closed on your loan? This is another great source of tax savings, especially in the first year.
How it Works
A point is a fee equal to 1% of your mortgage principal that is paid upfront. Points are often paid to reduce your interest rate. If these points were genuinely paid to lower your interest rate on a new home purchase, you can typically deduct the full amount in the year you paid them.
Key Exception
If you paid points when you refinanced your home, you cannot deduct them all at once. You must typically spread that deduction out over the entire life of the loan.
Find the Number
The amount you paid in points will also be listed on your Form 1098 or on your closing documents.
4. Home Equity Interest (Under Strict Conditions)
Many homeowners take out a Home Equity Line of Credit (HELOC) or a second mortgage to access the equity they’ve built up. The interest on these loans can be deductible, but the IRS is very strict about how you use the money.
The Condition
You can only deduct the interest if the borrowed money was used to buy, build, or substantially improve the home that secures the loan.
Crucial Tip
If you took out a HELOC to consolidate credit card debt, pay for a wedding, or fund college tuition, the interest on that loan is not deductible. You must be able to prove the funds were used to make capital improvements to the home.
5. Private Mortgage Insurance (PMI) Premiums
PMI is typically required if you put down less than 20% when you bought your home, and it’s an expensive fee paid to protect the lender (not you!).
Your Most Important Question: Should I Itemize?
These five deductions—and a few others, like charitable contributions—only matter if you choose to itemize your deductions on Schedule A. You must compare your itemized total to the current standard deduction for your filing status:
| Filing Status | 2024 Standard Deduction (Check for 2025 updates) |
| Single or Married Filing Separately | $14,600 |
| Married Filing Jointly | $29,200 |
| Head of Household | $21,900 |
If the total of your itemized deductions (like mortgage interest, property taxes, etc.) is higher than the standard deduction for your status, you should itemize. If it’s lower, the standard deduction is the better choice.