What to Do With a Tax Refund? Invest in Housing

Many taxpayers can expect a larger refund on their tax return for 2025 than in recent years. Early IRS data (as of March 21, 2026) shows an average increase of about 11% in comparing refunds for tax returns for 2025 and those received at the same time for 2024. The windfall stems mostly from retroactive provisions in the One, Big, Beautiful Bill Act and the fact that employers and payroll providers continued using employees’ original withholding figures. Whether you’re a homeowner or a potential home buyer, housing should be a top contender when you’re deciding what to do with your hopefully larger tax refund.

Weigh Your Options for Maximizing Your Tax Refund

When you’re choosing a housing investment option, start by creating a simple decision framework, advises Ilyce Glink, author of books on money and real estate. Here are three basic considerations:

Start or build an emergency house fund. If you have a fund with less than $5,000, your refund should go there. “You’ve got to protect yourself,” she says.

If your mortgage interest rate is 4% or less and you’re staying put, think about upgrades you want to make.

“If you don’t need any upgrades, your mortgage is at 4% or less and you already have $10,000 in your emergency fund, do something fun, Glink says. “Are you sick of the stove and want to replace it? Want to repaint your dining room or buy new light fixtures?

Pay Down Your Mortgage

“By reducing the principal on your mortgage directly, you’ll see dollar-for-dollar savings,” says Evan Liddiard, director of federal tax policy at the National Association of REALTORS®. “It will lower the amount you owe, which will instantly increase your equity. And less interest will accrue on the account over time, so you’ll pay less in the future.”

Another good reason to pay down principal and ramp up equity is you may be eligible to remove private mortgage insurance, or PMI, says Colin Wallace, a lending manager at Chase Home Lending in Nashville. If you put down less than 20% when purchasing your home and you have a conventional mortgage, you are likely paying PMI. (If you have an FHA loan it’s known as MIP, mortgage insurance premium.)

Fix Up Your Home

The right home improvements are a great way to increase your home’s value or enjoy your home more.
Think about upgrades that fit your life stage, Glink says. “These improvements don’t necessarily make your house more valuable, but they give you the flexibility to enjoy your property for longer.”

• If you’re a senior, think about an aging-in-place upgrade like installing lever-style handles on faucets and doors or installing a zero-entry shower.
• If you have kids, invest in a sports court or turn an unfinished basement into a half workout space, half rec room with a big TV screen for more family time.”
• New parents might spend the money on baby proofing, and pet owners might look into installing automatic doors for easy access for pets.

If you’re after ROI and possible resale, certain home improvement projects are “universally recognized as good investments, like replacing an old garage door,” says Matt Frankel, a certified financial planner and managing partner at Levine Leichtman Capital Partners in Beverly Hills, Calif.

“Minor kitchen repairs are another option,” he says. With an average refund of $3,700 you’re not going to completely renovate your kitchen, but you can give it a face lift to improve equity.” NAR’s Remodeling Impact Report can help you choose upgrades that fit your refund and offer the best return.

Prepare for Maintenance

“Think about your hot water heater blowing; that’s $1,200 to $1,500 you’re otherwise putting on your credit card or a buy now, pay later plan,” Glink says. “Or you’ve got roof damage that’s not bad enough to file with your insurance company. The maintenance stuff adds up.”

Shoot for saving 1% to 3% of your home’s value each year for maintenance. Glink suggests keeping your stash in an FDIC-approved high-interest-bearing account. “Keep it liquid since this is your emergency cash.”

Looking to Buy?

If you’re still house hunting, “you might want to put your refund into a high-yield savings account to generate interest toward a down payment,” Frankel says. “Some states offer first-time home-buyer accounts with tax advantages. These work like college savings accounts where you get a state write-off for setting money aside for a first home.”

Pay Down Credit Card Debt

“When you apply for a mortgage, they look at your debt-to-income ratio,” Frankel says. “Paying down your credit card saves you interest, helps you qualify for a mortgage, increases your credit score and can get you a lower interest rate.”

Fund a Home-Buyer Education Course

While you’re looking, take some time to research first-time homebuyer programs in your area. “Some require a home-buyer education course, which your tax refund might cover,” Frankel says.

Deciding what to do with a tax refund might come down to personal preference, but you can get outside help. A real estate agent who knows your area is a good place to start, Frankel says. “They can tell you what will actually move the needle.”

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