This blog is for educational purposes only, not an offer of credit or advertisement for current loan terms. It does not provide legal advice. Refer to our loan web pages or consult professional advisors for specific information.
First, don’t panic. It may feel overwhelming, but with the right information and preparation, it’s an opportunity to maximize deductions and possibly increase your tax refund.
As part of MIDFLORIDA Credit Union’s commitment to homeownership, we’ll walk you through the major considerations about filing taxes for the first time as a homeowner.
Let MIDFLORIDA help you on your journey to homeownership.
Understand your new tax deductions
One of the biggest changes when filing taxes after buying a home is the potential for new deductions. The most common deductions include the following.
Mortgage interest deduction
If you itemize deductions, you can deduct the interest paid on your mortgage.
For loans originated after December 15, 2017, the deduction is limited to interest on mortgage debt up to $750,000 ($375,000 if married filing separately).
Property tax deduction
The property taxes you paid during the tax year can also be deducted. Keep in mind, however, that the state and local tax (SALT) deduction, which includes property taxes, is capped at $10,000 annually ($5,000 if married filing separately).
Points deduction
If you paid discount points or loan origination fees to reduce your mortgage interest rate, you may be able to deduct them.
Points paid on a loan to purchase your primary residence are usually deductible in the year they were paid, while points paid during a refinance are typically spread over the life of the loan.
Gather the necessary documents
To claim these deductions and ensure an accurate tax return, you’ll need to gather the following documents:
- Form 1098: Your lender will provide this form, which details the amount of mortgage interest and points you paid during the year—and may include information about property taxes if they were paid from an escrow account
- Property tax statements: If you paid property taxes directly (rather than through an escrow account), collect your tax statements or receipts as proof of payment.
- Closing disclosure: This document, provided at the time of your home purchase, outlines your loan details, including any points paid and property taxes paid at closing.
- Receipts for home improvements (if applicable): If you made significant improvements to your home using a cash-out refinance or home equity loan, you’ll need documentation to determine whether the interest is tax-deductible.
Itemize or take the standard deduction?
As a homeowner, you must decide if itemizing your deductions vs. taking the standard deduction is best.
For many first-time homeowners, this decision depends on whether their total itemized deductions exceed the standard deduction.
2024 standard deduction amounts:
- $13,850 for single filers
- $27,700 for married couples filing jointly
- $20,800 for heads of household
Add your mortgage interest, property taxes, and other deductible expenses. If the results exceed the standard deduction, itemizing may be the better option (and vice-versa).
Homeowner tax credits to explore
In addition to deductions, homeowners may qualify for tax credits—these may directly reduce the tax owed.
Some credits to consider include:
Energy-efficient home improvement credits
- Residential Clean Energy Credit: Covers 30% of the cost of renewable energy systems—think: solar panels or geothermal heat pumps
- Energy Efficient Home Improvement Credit: Provides up to $1,200 annually for upgrades such as energy-efficient windows, doors, and HVAC systems
Unlike deductions, these credits can be considered even if you take the standard deduction.
Tax implications of property taxes paid at closing
When you purchased your home, part of your closing costs likely included prepaid property taxes. These amounts are deductible if they were paid during the tax year.
Review your closing disclosure to identify the property taxes paid at closing, as they can be added to any taxes paid through your lender’s escrow account.
Special considerations for first-time filers
First-time homeowners should also be aware of the following tax-related nuances:
Adjustments for partial-year ownership
If you purchased your home partway through the year, your mortgage interest and property tax deductions will only apply to the months you owned the home.
For example, if you closed on your home in July, you can only deduct expenses incurred from July through December.
Escrow account adjustments
Many lenders collect property taxes and insurance premiums through escrow accounts. If you received an escrow refund due to an overpayment, it is important to adjust your deductions accordingly.
You can only deduct property taxes that were actually paid to your local government.
Moving expenses (limited to military personnel)
If your home purchase was due to a military-related move, you may be able to deduct moving expenses—limited to active-duty service members relocating under military orders.
Common mistakes to avoid
Filing taxes after buying a home involves new complexities, and mistakes can lead to missed deductions or IRS scrutiny. Here are a few common errors to watch out for:
- Claiming the full year of deductions for partial-year ownership: Ensure you only deduct mortgage interest and property taxes for the months you owned your home.
- Overlooking the standard deduction: While itemizing may seem advantageous, it’s not always the best option—compare your total itemized deductions to the standard deduction before deciding.
- Failing to track home-related expenses: Keep detailed records of your property taxes, home improvements, and other expenses to maximize your deductions and credits.
When to seek professional help
Uncertain about how to file? Consulting a tax professional often saves you time and helps you maximize your tax savings.
A tax advisor can:
- Answer the itemize vs. standard deduction question
- Identify all eligible deductions and credits
- Ensure compliance with IRS regulations
Professionals are especially beneficial if your tax situation is complex, such as when you purchase a home using a cash-out refinance or own multiple properties.
Maximize your tax savings as a new homeowner
Filing taxes for the first time after buying a home can seem daunting, but with the proper knowledge and preparation, it’s a chance to take full advantage of your new tax benefits.
You can make the most of your tax situation by understanding the deductions and credits available, keeping accurate records, and seeking professional advice if needed.
MIDFLORIDA has helped thousands of Floridians get started on their homebuying journey.
Start your mortgage application today and discover how MIDFLORIDA can help get you into your new home.
