Reviewed and updated October 16, 2026

Separate purchase costs from deductions

Buying a home does not automatically create a federal first-time-buyer credit. A mortgage payment includes different components: principal generally is not deductible, while qualifying interest may be deductible if you itemize and satisfy the rules. Escrow deposits are not the same as taxes actually paid to a taxing authority.

Some closing costs become part of the property’s basis, some may qualify for separate treatment and others are personal costs. Keep the full closing disclosure rather than trying to deduct every charge shown at settlement.

Compare itemized deductions correctly

Eligible mortgage interest, property taxes and other itemized deductions must be compared with your standard deduction and current limitations. A home purchase can leave you using the standard deduction. Points, mortgage insurance and debt used for purposes other than acquiring or improving a qualifying home need specific review.

Property-tax exemptions are separate from federal income-tax deductions. Check local homestead requirements, application timing and ownership conditions with the property appraiser or assessor. An escrow company’s involvement does not ensure every exemption has been applied.

Build a permanent home file

Save the purchase closing statement, improvement invoices, property-tax records, mortgage statements and information about any rental or business use. Capital improvements can affect basis when you later sell, even if they provide no immediate deduction. Routine upkeep generally follows different treatment.

Before claiming an energy credit, check the actual project date and current law; major federal residential credits ended for new post-2025 projects. Share the closing documents with your tax professional and review withholding after a major household change, using realistic deductions rather than an assumed refund.

Official sources

This guide provides general information. The rules depend on the tax year, jurisdiction and your circumstances. Ask our team which filing or planning steps apply to you.