The New Homeowner's Guide to Filing Taxes: What You Need to Know

Congratulations on becoming a homeowner! Along with the excitement of owning your first home comes a new reality: your tax situation just got more complicated. But don't worry—it also likely got more beneficial. Understanding how homeownership affects your taxes can save you thousands of dollars and help you avoid costly mistakes.

Whether you purchased your home last year or you're preparing for your first tax season as a homeowner, this guide will walk you through everything you need to know about filing taxes as a new homeowner.

Why Homeownership Changes Your Tax Picture

When you rent, your tax return is relatively straightforward. But homeownership introduces several new deductions and credits that can significantly reduce your tax bill. The key is knowing what you can deduct, what documentation you need, and how to maximize your savings.

For many new homeowners, these deductions make itemizing more beneficial than taking the standard deduction.

Essential Tax Documents to Gather

Form 1098 (Mortgage Interest Statement): Your lender will send this by January 31st. It shows how much mortgage interest you paid during the year—typically your largest deduction.

Property Tax Records: These show the real estate taxes you paid. You might receive a statement from your local tax authority, or this information may be included in your mortgage statements if you pay taxes through an escrow account.

Closing Disclosure: From when you purchased your home, this document lists all the costs associated with your purchase, some of which may be deductible.

Home Improvement Receipts: While most improvements aren't immediately deductible, keeping records is crucial for when you eventually sell your home, as they can increase your cost basis and reduce capital gains taxes.

Homeowners Insurance Records: While insurance premiums aren't typically deductible for your primary residence, you'll want these records organized for other purposes.

The Big Deductions: What You Can Write Off

Mortgage Interest Deduction

This is usually the largest tax benefit for homeowners. You can deduct the interest you pay on mortgage debt up to $750,000 ($375,000 if married filing separately) for homes purchased after December 15, 2017. For homes purchased before that date, the limit is $1 million.

In the early years of your mortgage, most of your monthly payment goes toward interest, making this deduction particularly valuable. For example, on a $400,000 mortgage at 7% interest, you might pay around $27,000 in interest during your first year—a substantial deduction.

**Important note**: You can only deduct interest on a loan secured by your home. Personal loans used for a down payment don't qualify.

Property Tax Deduction

You can deduct state and local property taxes, but there's a catch: the Tax Cuts and Jobs Act capped the state and local tax (SALT) deduction at $10,000 ($5,000 if married filing separately). This includes property taxes plus state income taxes or sales taxes.

For homeowners in high-tax states, this cap can be limiting. If your property taxes alone exceed $10,000, you won't be able to deduct the full amount.

Mortgage Points

If you paid points to lower your interest rate when you purchased your home, you may be able to deduct them. Points paid on your primary residence purchase can typically be deducted in full in the year you bought the home. However, points paid on a refinance must usually be deducted over the life of the loan.

Private Mortgage Insurance (PMI)

If you put down less than 20% and pay PMI, you might be able to deduct these premiums—but this deduction has income limits and isn't always available. Check current IRS guidelines, as this deduction has been extended and allowed to expire multiple times in recent years.

The Bottom Line

Homeownership brings valuable tax benefits that can save you thousands of dollars each year, particularly in the early years of your mortgage. The key is understanding what you can deduct, maintaining proper documentation, and determining whether itemizing makes sense for your situation.

While this guide covers the major tax considerations for new homeowners, everyone's situation is unique. Tax laws are complex and change regularly, so consider this a starting point rather than personalized tax advice. When in doubt, consult with a qualified tax professional who can review your specific circumstances and ensure you're maximizing your deductions while staying compliant with IRS regulations.

Your first tax season as a homeowner might feel overwhelming, but with proper preparation and understanding, you'll navigate it successfully—and likely with a smaller tax bill than you had as a renter. Welcome to one of the most rewarding aspects of homeownership!