Which tax deductions should first-time homeowners know about?
As a first-time homeowner, you may be looking to save some money. Tax deductions are a great way to relieve a little financial stress that may have been brought on by purchasing a home.
Buying a home is the biggest purchase most people will ever make, so qualifying for tax deductions could potentially help offset the cost of a home purchase. If you know what the interest rate on your mortgage may be, you can start considering tax deductions before or as you are shopping for a home.
To see what your interest rates might look like and start figuring out the tax deductions you may be eligible for, talk with a trusted lender and get a mortgage pre-approval today.
Deduction options
If you are looking for some popular tax savings options as a new homeowner, there are a few options you can consider. To get the most out of your tax deductions, make sure you itemize all your deductions instead of claiming standard deductions.
Mortgage interest deduction
A mortgage interest deduction allows homeowners to deduct their mortgage interest payments from their taxable income. New loans have a deduction cap on the first $750,000 of the loan. If you are married and filing separately, your cap will drop to $375,000 each. A second home can be eligible for a mortgage interest deduction if it meets the IRS guidelines to qualify for a residence.
If you purchased your home before Dec. 16, 2017, you may qualify for a larger mortgage interest deduction.
Property tax deduction
The property tax you pay during the year may be deductible from your federal income tax. The amount of property tax you can deduct is up to $40,000 but will be cut in half if you are filing separately while married.
Mortgage insurance deduction
Mortgage insurance deduction is no longer offered as of 2025. However, when in effect, mortgage insurance deduction allowed homeowners to deduct mortgage insurance premiums (MIP) and private mortgage insurance (PMI) on federal tax returns.
Even though this deduction is no longer available, efforts are being made to reinstate mortgage insurance deductions.
Energy efficient home improvement credits
If you are looking to make energy-saving improvements to your home, you could claim 30% of the home upgrades on your taxes. Home improvement upgrades reach a maximum of $1,200, as well as $2,000 for boilers and heat pumps. Before starting any improvements or upgrades, make sure you check to see that the products you plan to use are eligible for the tax credit. Each item upgraded will have its own credit limit.
If your home is newly built or used as a business, you may not be eligible for these savings.
Other ways to save money as a new home buyer
If you are looking to save money* as you prepare to become a first-time homeowner, here are some other options you may want to consider.
Start your homeowning journey as a first-time buyer
As a first-time homebuyer, you can begin your homeowning journey with knowledge of what your home loan would look like by talking with a lender and getting a mortgage pre-approval.
Pre-approvals show you the amount lenders are willing to give you when it comes to your mortgage. This will show you how much you can afford when you start to shop for a home. It will also give you an idea as to what your monthly mortgage payments are going to be. With that in mind, you can start planning for and looking into the tax deductions you might qualify for.
When talking with a lender, make sure you ask about any savings you may qualify for as a first-time homeowner.
Get your pre-approval and start your homeowning journey today!
*Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact Rate for current rates. Restrictions apply.
**Rate is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the Nevada Department of Veterans Services, the US Department of Agriculture, or any other government agency. No compensation can be received for advising or assisting another person with a matter relating to veterans’ benefits except as authorized under Title 38 of the United States Code.
Rate does not provide tax advice. The consumer should always consult a tax advisor for information regarding the deductibility of interest and other charges in their particular situation.
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Information provided is for educational purposes only. It should not be construed as financial or legal advice or instruction. Rate does not guarantee or assume liability for the accuracy, completeness or timelines of the information. You should conduct additional research before making any mortgage related decisions.
