Buying a home changes your tax return in ways many first-time owners do not expect. The interest you pay on a mortgage and the property taxes you pay to your county can both be deductible, but only if you itemize. For many households the standard deduction is still larger, which means the "mortgage tax break" ends up being worth nothing at all. This guide explains how the pieces fit together so you can tell which group you are in before you file.

Itemizing vs. the standard deduction

Every filer chooses between the standard deduction and itemized deductions on Schedule A, whichever is larger. For the 2025 tax year the standard deduction is $15,750 for single filers, $31,500 for married couples filing jointly and $23,625 for heads of household. Mortgage interest, state and local taxes, charitable gifts and certain other expenses only reduce your tax if, added together, they exceed that amount.

That is the most important point in this article: a homeowner who pays a modest amount of mortgage interest and lives in a state with low property taxes may find that the standard deduction still wins. In that case the mortgage does not lower the tax bill at all, and any budget that assumed a "tax savings" from the home should be revisited.

What counts as deductible mortgage interest

Qualified mortgage interest is interest on a loan secured by your main home or a second home that you used to buy, build or substantially improve that home. Your lender reports the interest you paid during the year on Form 1098, which usually arrives by the end of January. A few practical notes:

  • Loan limits apply. The deduction is limited for very large mortgages. IRS Publication 936 explains the limits and how they depend on when the loan was taken out.
  • Home equity borrowing. Interest on a home equity loan or line of credit is only deductible when the money was used to buy, build or substantially improve the home that secures the loan. Interest on equity borrowed to pay off credit cards or buy a car does not qualify.
  • Points. Points paid to obtain a mortgage on your main home may be deductible in the year paid if certain conditions are met; otherwise they are spread over the life of the loan. Refinance points are generally spread out.
  • Escrow payments are not all interest. Your monthly payment may include principal, insurance and property tax deposits. Only the interest portion shown on Form 1098 is mortgage interest.

Property taxes and the SALT cap

Real estate taxes you actually paid during the year are part of your state and local tax (SALT) deduction, together with either state income tax or state sales tax. The combined SALT deduction is capped; for 2025 the site's figures use a cap of $40,000, and higher-income households can be limited further. In states without an income tax, such as Texas, property tax is often the largest SALT item.

Use the amount actually paid to the taxing authority in the calendar year. If your lender pays from escrow, Form 1098 or your annual escrow statement usually shows the amount disbursed.

Quick test: Add your Form 1098 interest, the property tax you paid, your state income or sales tax (within the SALT cap) and your charitable gifts. If the total is below your standard deduction, itemizing will not help this year.

A simple way to compare

  1. Gather Form 1098, your property tax receipts and records of other itemized expenses.
  2. Total the itemized amounts, applying the SALT cap.
  3. Compare the total with your standard deduction for your filing status.
  4. Choose the larger one. Tax software performs this comparison automatically, but knowing the numbers helps you spot mistakes.

Married couples filing separately should note that if one spouse itemizes, the other generally must itemize too.

Other homeowner items worth knowing

  • Home office. Employees generally cannot deduct a home office. Self-employed people who use part of the home regularly and exclusively for business may qualify, and the rules are in Publication 587.
  • Energy improvements. Certain energy-efficient improvements and residential clean energy equipment have had federal credits. Credits change often, so check IRS.gov for the year you install anything.
  • Selling later. When you sell your main home, part or all of the gain may be excluded if you meet ownership and use tests. Keep records of the purchase price and improvements now; Publication 523 explains the rules.

Records to keep

Keep your closing disclosure, every Form 1098, property tax statements and receipts for major improvements for as long as you own the home and for several years after you sell it. These documents support both your annual deductions and the calculation of any gain on sale.

Tax rules for homeowners change, and the right choice depends on your full return. For anything beyond a straightforward comparison, check IRS Publication 936 or ask a qualified tax professional such as a CPA or enrolled agent.

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Informational only. A Tax Man is not a tax preparer, CPA, enrolled agent or law firm, and is not affiliated with or endorsed by the IRS. Figures quoted are 2025 tax-year values. This article is not tax, legal or financial advice; check IRS.gov or a qualified professional for your situation. See our disclaimer.

Disclaimer: This article is for educational purposes only and does not constitute professional tax or financial advice. Consult a licensed tax or financial professional for advice specific to your situation.
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