When you’re buying a home, one of the questions you might be asking is, “How does buying a house affect taxes?” The short answer? Buying a home could reduce your overall tax liability if you itemize deductions and pay a large amount of mortgage interest.
There are other conditions that need to be met, and it is possible that the amount of tax you owe will stay the same. Of course, it’s always best to consult with a tax advisor for your individual situation.
To give you a general idea about how buying a home in 2025 affects taxes, we’ve compiled everything you need to know about how tax breaks work, what you can deduct, and whether or not it will make sense to itemize deductions.
Table of Contents
Key Points
• Buying a house can have tax implications, such as deductions for mortgage interest and property taxes.
• Homeowners may be eligible for the mortgage interest deduction if they itemize their deductions on their tax return.
• Home expenses that are not deductible include down payment, home repairs, utility payments, and home association or condo fees, among other expenses.
• A tax deduction reduces the amount of money you are taxed on, while a tax credit is an amount that’s subtracted from the tax you owe.
• It’s important to consult a tax professional to understand how buying a house will specifically impact your taxes.
Does Buying a House Help With Taxes?
It’s possible that buying a house can help with taxes — but only for tax filers who itemize their deductions. In 2020, the most recent year with data available, approximately 90% of Americans took the standard deduction rather than itemizing. This signals that it may be unlikely you’ll have enough deductions for itemizing to make sense. Of course, if it can reduce your taxes, it’s worth looking into.
You might also be wondering, “How does buying a house in cash affect taxes?” If you don’t have a mortgage, you’re not paying interest, so you’re not able to take the home mortgage interest deduction. But you’re still able to deduct property taxes if you itemize. Remember to consider this even if your property taxes are part of your mortgage payments.
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How Do Homeowner Tax Breaks Work?
Tax breaks start as Congressional bills passed into law and funded by the U.S. Congress. However, it is up to individual homeowners to find and file the correct paperwork to take advantage of these tax breaks.
Tax breaks come to homeowners as either tax credits or tax deductions.
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The Difference Between Tax Deductions and Tax Credits
The difference between a tax deduction and a tax credit is where it appears on IRS form 1040 and how much it reduces your final tax bill or refund. This will make more sense after we explain each.
Deductions On IRS Form 1040, deductions are compiled before being subtracted from your income. This is done before tax is calculated, so having deductions can reduce the overall amount of tax you owe. But because a deduction comes before tax is calculated, the reduction in tax liability is generally less than if the amount of tax owed was directly reduced by a credit (though this depends on the amount of each).
Credits Credits are subtracted from the amount of tax you owe. If you don’t owe tax but are instead receiving a tax refund, credits can increase the amount of money coming your way from the IRS. Generally speaking, credits put more money back in your pocket. You may have heard about a first-time homebuyer tax credit. A bill that would have provided for this benefit was introduced in 2021 and again in 2024, but as of July 2025 it had not passed into law.
Deductions are more common; however, with the revamp of the tax code in 2017 with the Tax Cuts and Jobs Act, the standard deduction was increased substantially and fewer people find the need to itemize. The One Big Beautiful Bill’s passage in July 2025 made that increase permanent and enhanced it slightly. Nevertheless, it’s probably a good idea to add “keep track of possible tax deductions” to your list of New Year’s financial resolutions.
What Are the Standard Deduction Amounts for 2025?
It’s important to know the standard deduction amounts so you know if taking the home mortgage loan interest deduction will make financial sense for you.
• For single filers: $15,570
• For head of household: $23,6325
• For married people filing jointly: $31,500
If the amount of mortgage interest you pay is far below the threshold for choosing the standard deduction, you may not be able to find enough deductions for itemizing to make sense. The increased standard deduction in 2017 made this especially true, but there are certain scenarios where you should still itemize deductions.
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Who Should Itemize Deductions
You should itemize deductions if the total amount of your deductions is more than the standard deduction. If you are in any of the following situations, you may have enough qualified deductions for itemizing to make sense.
• If you have large medical or dental expenses that are not paid for by an insurance company
• If you paid a large amount of interest on your mortgage
• If you donated large sums to charity
• If you can claim a disaster or theft loss
• If you cannot take the standard deduction
• If you can qualify for large amounts of the “other itemized deductions” found on the IRS forms
It’s hard to say if your individual situation will mean that itemizing deductions makes sense. It may be worth it to consult with a tax professional.
Which Home Expenses Are Tax Deductible?
When you’re looking for home expenses that are tax-deductible, the IRS defines it very narrowly. The costs that are deductible include:
• State and local real estate property taxes up to $40,000 in 2025. This amount will reset annually to 101% of the previous year’s amount until 2030, when it will return to $10,000.
• Home equity loan interest if you used the funds from a home equity loan to buy, build, or substantially improve your property. Note that eligible home equity loan interest is considered part of your mortgage interest and contributes to the totals for that deduction (below).
• Mortgage interest deduction up to defined limits:
◦ For loans taken out after December 15, 2017: You can deduct home mortgage interest on the first $750,000 of debt or the first $375,000 of debt for a married person filing separately.
◦ For loans taken out on or prior to December 15, 2017: You can deduct home mortgage interest on the first $1,000,000 of debt or the first $500,000 for a married person filing separately.
Which Home Expenses Are Not Tax Deductible?
Most home expenses, unfortunately, are not tax deductible. These include things to budget for after buying a home. The IRS specifically outlines these living expenses that cannot be claimed as a deduction:
• Utility expenses, like gas, water, electricity, garbage, sewer, internet, etc.
• Home repairs
• Insurance
• Homeowners association or condo fees
• Cost of domestic help
• Down payment and earnest money
• Closing costs
• Depreciation
Potential tax deductions are one thing to factor into your financial considerations as you think about whether you are ready to buy a home, but they certainly aren’t what should be driving your decision to make a purchase.
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The Takeaway
It is possible for the amount of tax you owe to be lower after you become a homeowner — but only if certain conditions are met. You’ll want to do the math and compare what your taxes will look like when you itemize deductions vs. when you take the standard deduction. That will be the best way to tell how buying a house will affect your taxes.
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FAQ
What is the tax break for buying a house in 2025?
If you itemize deductions on your federal return, you can claim a deduction for your mortgage interest paid on a home bought in 2025, along with state and local taxes paid in 2025.
Will my tax return be higher if I bought a house?
While there are a lot of factors that go into a tax return, generally speaking, if the deductions that come from homeownership reduce your tax liability compared to previous years while all other factors remain the same, then you should owe less (or even get money back).However, you will likely have to pay property tax.
How does buying a house with cash affect taxes?
If you buy your home with cash, you won’t be able to utilize the mortgage interest tax deduction. However, since you will also not be paying any interest, that may not be significant enough to warrant getting a mortgage if you can afford not to. Consult your tax advisor to see what makes the most sense for you.
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