When you finance a home purchase, you typically make a down payment at the close. Money you pay for a down payment is not deductible on your income tax return, according to the Internal Revenue Service.
Down Payment Restrictions
In its Publication 530, the IRS specifically lists down payments as one of several nondeductible home payments. Your down payment is an investment in your property, unlike fees such as loan interest and property taxes, which are charges related to your ownership of the property. Home insurance premiums are another of the deductible home expenses, according to the IRS.
Earnest money is closely related to your down payment. When you submit a purchase offer, you typically make a modest earnest money deposit to prove your commitment. At the close, your earnest deposit becomes part of your down payment. IRS Publication 530 also lists earnest money as nondeductible. If you breech your contract and don't recover your earnest money, you still can't claim a deduction. Deducting forfeited deposits is also prohibited by the IRS.