Is Buying a Home Tax Deductible in California? Complete 2025 Guide for Homeowners
Buying a home in California represents one of the largest financial investments you'll make, particularly in high-cost markets like Los Angeles, San Francisco, and San Diego. Many California homebuyers wonder whether their home purchase qualifies for tax deductions. While the home purchase itself isn't directly tax deductible, California homeowners can claim significant deductions related to homeownership that can substantially reduce their tax liability.
Understanding these deductions is crucial for California homeowners, where median home prices often exceed $700,000 and property taxes can reach $15,000+ annually in premium markets.
What Home Buying Costs Are Tax Deductible in California?
California homeowners can deduct several costs associated with homeownership, though not the purchase price itself. The primary deductible expenses include mortgage interest, property taxes, and certain loan-related fees. These deductions apply to both primary residences and qualifying second homes within California.
The key is understanding which specific costs qualify and how federal and California state tax rules interact to maximize your savings.
Mortgage Interest Deduction: California Rules and Limits
The mortgage interest deduction represents the largest tax benefit for most California homeowners. Federal law allows deduction of interest on mortgage debt up to $750,000 for homes purchased after December 15, 2017 (or $1 million for homes purchased before this date).
In California's expensive real estate markets, this cap significantly impacts many homeowners. For example, if you purchase a $1.5 million home in Beverly Hills with a $1.2 million mortgage, you can only deduct interest on the first $750,000 of debt.
Example calculation: A Pasadena homeowner with a $900,000 mortgage at 7% interest rate pays approximately $63,000 in annual interest. However, they can only deduct interest on $750,000, limiting their deduction to about $52,500.
California follows federal guidelines for mortgage interest deductions, making this benefit available on both your federal and state tax returns.
Property Tax Deductions for California Homeowners
California homeowners can deduct property taxes as part of the state and local tax (SALT) deduction, capped at $10,000 annually when combined with state income taxes. This cap, implemented in 2018, significantly impacts California residents due to high property values and state income taxes.
California property tax rates average 0.75% of assessed value statewide, but vary by county. Los Angeles County averages 1.25%, while some Bay Area counties exceed 1.5%. For a $1 million Los Angeles home, annual property taxes typically range from $10,000-$15,000.
Strategic consideration: High-income California residents often hit the $10,000 SALT cap quickly, limiting additional property tax deduction benefits. Tax planning becomes essential for maximizing available deductions.
Points and Loan Origination Fees: When They're Deductible
Points paid to reduce your mortgage interest rate are generally deductible in the year of purchase, provided they meet IRS requirements. In California's competitive market, buyers often pay points to secure better rates on jumbo loans.
To qualify for immediate deduction, points must be:
Paid directly by the borrower (not from loan proceeds)
Calculated as a percentage of the loan amount
Used to secure the mortgage on your primary residence
Consistent with local lending practices
Example: A San Diego buyer pays $8,000 in points on a $800,000 mortgage. If properly structured, this entire amount can be deducted in the purchase year, potentially saving $2,000-$3,000 in taxes.
What Home Purchase Costs Are NOT Tax Deductible?
Several significant home buying costs cannot be deducted in California:
Closing costs: Title insurance, escrow fees, recording fees, attorney fees, and appraisal costs are not deductible. These typically total 1-3% of purchase price in California.
Insurance premiums: Homeowners insurance, earthquake insurance, and flood insurance premiums cannot be deducted as itemized deductions.
HOA fees: Monthly homeowners association dues, common in California condominiums and planned communities, are not deductible.
Moving expenses: Generally not deductible unless you're active-duty military with qualifying relocations.
Home improvements: Renovations and improvements must be added to your home's cost basis rather than immediately deducted.
California vs Federal Tax Deduction Differences
While California generally follows federal tax deduction rules, important differences exist:
Mortgage insurance premiums (PMI): California doesn't allow deductions for private mortgage insurance, while federal law has periodically permitted this deduction.
Home equity loan interest: California follows federal restrictions limiting deductions to loans used for home improvements.
State-specific credits: California offers various energy efficiency and solar installation credits not available federally.
Always consult California-specific tax guidance, as state rules can change independently of federal regulations.
Documentation Required for Home Tax Deductions
Proper documentation is essential for claiming California home tax deductions:
Form 1098: Mortgage interest statement from your lender
Property tax bills: Official county assessor statements
Settlement statements: HUD-1 or Closing Disclosure showing points paid
Payment records: Bank statements proving tax and interest payments
HOA statements: To distinguish between deductible special assessments and non-deductible fees
Maintain these records for at least three years after filing, though seven years is recommended for significant purchases.
Tax Planning Strategies for California Homeowners
Timing property tax payments: Since SALT deductions are capped, consider timing property tax payments to maximize benefits across tax years.
Considering refinancing implications: Refinancing resets the mortgage interest deduction timeline and may affect point deductions.
Evaluating jumbo loan strategies: For homes exceeding conforming loan limits, consider structuring financing to maximize deductible interest.
Frequently Asked Questions
Q: Can I deduct home inspection costs? A: No, inspection costs are not deductible but can be added to your cost basis.
Q: What if I buy a fixer-upper in California? A: Purchase costs aren't deductible, but renovation expenses may qualify for energy credits or increase your cost basis.
Q: Are there different rules for condos vs single-family homes? A: Deduction rules are identical, though condo owners should carefully distinguish between deductible special assessments and non-deductible HOA fees.
Q: How do solar installations affect my taxes? A: California offers state tax credits for solar, separate from federal credits, and installation costs increase your home's cost basis.
When to Consult a Tax Professional
Given California's complex tax environment and high property values, consult a CPA or tax attorney when:
Your home purchase exceeds $750,000
You're approaching SALT deduction limits
You have multiple properties
You're considering complex financing structures
You have significant self-employment income
California's unique tax landscape makes professional guidance valuable for optimizing your homeownership tax benefits while ensuring compliance with both state and federal requirements.
Author: Justin Borges
Justin Borges is the Team Leader of The Borges Real Estate Team at eXp Realty and widely recognized as the best realtor in Los Angeles. With over a decade of experience and more than $200 million sold, Justin leads one of the top-performing real estate teams in Los Angeles County. Known for his advisor-first approach, he helps homeowners, buyers, and investors make confident real estate decisions—focusing on strategy, clarity, and long-term success rather than just transactions.
