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What is deductible when you buy a house?

Posted on September 5, 2023

The IRS considers a ‘home’ to be a house, condominium, cooperative apartment, mobile home, houseboat, or even a house trailer if it contains a sleeping space, toilet and cooking facilities. So what home-buying related costs does the IRS approve as tax deductible?

Here’s what to know:

Most home buyers get a mortgage loan to buy their home, and then make monthly payments to the mortgage holder. The only costs the homeowner can deduct from their mortgage are:

Homeowners cannot deduct any of the following:

  • Insurance (other than mortgage insurance), including fire and comprehensive coverage, and title insurance
  • Any amount applied to reduce the principal of the mortgage
  • Wages paid for domestic help
  • Depreciation
  • Utilities, such as gas, electricity, or water
  • Most settlement or closing costs
  • Forfeited deposits, down payments, or earnest money
  • Homeowners’ association fees, condominium association fees, or common charges
  • Home repairs

Taxpayer homeowners must file Form 1040, U.S. Individual Income Tax Return, to itemize their deductions in order to deduct home ownership expenses. (Taxpayers cannot take the standard deduction if they itemize, so be sure you know which way suits your situation. Your CPA can help.)

Mortgage interest credit
The mortgage interest credit is meant to help individuals with lower income afford home ownership. Those who qualify can claim the credit each year.

Homeowners may claim this credit if they were issued a qualified Mortgage Credit Certificate (MCC) from their state or local government. An MCC is issued only for a new mortgage for the purchase of a primary residence. The MCC will show the certificate credit rate to be used to figure their credit. It will also show the certified indebtedness amount and only the interest on that amount qualifies for this credit.

Homeowners Assistance Fund
This program provides financial assistance to eligible homeowners for paying expenses directly related to this residence to prevent mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, or displacements for those experiencing financial hardship after January 21, 2020.

Minister’s or military housing allowance
Ministers and members of the uniformed services who receive a nontaxable housing allowance can still deduct their real estate taxes and home mortgage interest. They don’t have to reduce their deductions based on the allowance.

Home ownership – especially owning your first home — is a milestone that comes with a learning curve. It’s a good idea for first-time homeowners to become familiar with authorized deductions.

Ask your CPA for more help with your particular situation or go to IRS.gov and search
Publication 530, Tax Information for Homeowners, or
Publication 936, Home Mortgage Interest Deduction.