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How do Taxes Change for First-Time Homeowners?

You’ve turned the key in the door and taken the first look around your new home as a full-fledged homeowner. Congrats! One foot inside and you’re likely already in paint sample heaven. The last thing you want to think about is a first-time homebuyer tax credit, right? Well, there’s good news and there’s bad news: Your new home comes with some great tax perks, but you need to start planning now for next year’s filing. Here’s a sampling of the tax benefits of buying a home and tax breaks you can take advantage of.

Be aware of these new deductions and credits

Buying your first home is a life event that comes with a whole lot of tax deduction possibilities. These are tried-and-true deductions that add up to serious savings. When you are filing taxes a home owner you can deduct the following:

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  • Mortgage interest. Yes, the interest on your monthly payment is deductible. In 2017 and prior, you could deduct interest on mortgage debt up to $1 million, but as of 2018 filings, that figure has been reduced to $750,000.
  • Mortgage points. If you brought your mortgage interest rate down by a point or two, you can deduct that cost from your first tax filing after your purchase.
  • Property taxes. You can deduct your full real estate taxes on your annual taxes.
  • Mortgage insurance payments. If your down payment was less than 20%, you’re probably paying mortgage insurance every month. Nobody likes paying it, but at least it’s deductible!
  • Home office space. If you work from home, you can deduct the square footage where you conduct business on your taxes.
  • Credit for certain home repairs. If you upgrade your home to become more energy efficient, you may be able to deduct some of the costs so hang onto those receipts.
  • Waived IRA fees. While it’s not exactly a credit, if you dip into your IRA to make a home down payment, the IRS will waive the 10% penalty for removing money early. You can take up to $10,000.
  • Various itemization benefits. Before you bought a home, you may have taken the standard deduction. With enough reason to itemize, you’re eligible for all sorts of deductions, such as charitable donations.

MYMOVE recommends consulting an accounting professional before claiming any tax deductions.

Avoid surprises by planning now

Do yourself a favor by planning your taxes ahead. If you’re not aware of which documents you’ll need, it’s better to consult a CPA as soon as you can. Here are a few tips on preparing early:

  • Make a checklist of mortgage-related payments. Make a list and check it twice – your mortgage lender will send you necessary tax documents, but know what you’re looking for in the mail and hang onto them.
  • Keep receipts for home improvements or donations. When in doubt, save all receipts related to everything from charitable donations to home office purchases that could be deducted.
  • File early in case your accountant needs more information from you.

The Bottom Line 

Buying a house is fun, and believe it or not – filing your taxes can be too with the right preparation and know-how. Plan ahead and take advantage of those tax benefits of buying a home, and you might be able to afford that new big screen TV after all.

Frequently Asked Questions

How does owning a home affect your taxes? 

Owning a home will make your taxes more complicated, as you’ll have more deductions to itemize, but it comes with major tax benefits and will likely mean saving money in the end.

What do first-time homeowners need in order to file taxes?

When filing your taxes as a new homeowner, be sure to have tax documents related to your mortgage payments, mortgage insurance payments, property taxes, receipts of home repairs, and receipts of expenses related to a home office if you work from home.

Is there a new homeowner tax credit for 2020?

The federal first-time homeowner tax credit is no longer available, but many state housing authorities offer first-time home buyer tax credits and assistance programs.

Claire Voelker contributed to this report


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