Is there a tax deduction for buying a house?

For most people, buying a house is a huge financial step with lots of associated costs. As a newly minted homeowner, you may be wondering if there’s a tax deduction for buying a house. Unfortunately, most of the expenses you paid when buying your home are not deductible in the year of purchase.

The only tax deductions on a home purchase you may qualify for is the prepaid mortgage interest (points). To deduct prepaid mortgage interest (points) paid to the lender if you must meet these qualifications:

• Your main home secures your loan (your main home is the one you live in most of the time).
• Paying points is an established business practice in your area.
• The points you paid weren’t more than the amount usually charged in that area.
• You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
• The points you paid weren’t for items that are usually listed separately on the settlement sheet. Ex: appraisal fees, inspection fees, title fees, attorney fees, or property taxes
• The funds you provided at or before closing, including any points the seller paid, were at least as much as the points charged.
• You didn’t borrow funds from your lender or mortgage broker to pay the points.
• You used your loan to buy or build your main home.
• The points were computed as a percentage of the principal amount of the mortgage.
• The amount shows clearly as points on your settlement statement.

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Other fees that you paid before or at closing aren’t deductible. However, they’re included in your basis of the home. These fees include:

• Title insurance
• Appraisals
• Abstract fees
• Recording fees
• Surveys

You can deduct some of the ongoing payments you make for owning your home, including:

• Real estate taxes actually paid to the taxing authority
• Qualifying home mortgage interest
• Mortgage insurance premiums

You can’t deduct these:

• Property insurance
• Depreciation
• Utility payments