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March 25, 2024

First Tax Season in Your New Home? Tips For Filing Taxes As a New Homeowner

Buying your first home is exciting, but tax season can feel overwhelming. Unlock hidden savings! This guide unveils key tax deductions for new homeowners, from mortgage interest to home office setups. Learn how to maximize your tax benefits and keep more money in your pocket. Let's make your homeownership journey financially rewarding. Read on!

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.

Filing taxes as a new homeowner can be both challenging and crucial for financial well-being.

Basic taxation can be overwhelming enough, but it's essential to understand the rules and responsibilities specific to new homeowners during tax season.

To help you maximize your benefits, let’s discuss tax deductions tailored for new homeowners. By learning the intricacies of filing taxes as a new homeowner, you’ll uncover potential savings and capitalize on the associated tax benefits.

At MIDFLORIDA Credit Union, we’re dedicated to supporting your financial journey—guiding you not only through the process of securing your new home but also in getting the most out of your tax advantages as a homeowner.

Skip ahead: Start your application with MIDFLORIDA.

The basics of homeownership and taxes

Homeownership and taxes go hand-in-hand, but the system can work in your favor! American homeowners can leverage various tax benefits to reduce their overall tax burden. These benefits come primarily through tax deductions, which allow you to subtract specific expenses from your taxable income, lowering your final tax amount.

For new homeowners, these deductions can include a range of expenses directly related to the purchase and ownership of a home, providing a financial advantage that’s not available to renters.

New homeowner taxes and deductions

Primary tax deductions available to new homeowners typically include:

  • Mortgage interest
  • Property taxes
  • Points paid upfront during the closing process (if applicable)

These deductions not only lower your taxable income but also enhance the affordability of buying and maintaining a home—making homeownership more attractive and financially viable.

Five key tax deductions for new home purchases

Whether filing yourself or with the help of a tax professional, there are main deductions you’ll want to be aware of when filing taxes as a new homeowner.

Key tax deductions for new home purchases include:

  1. Mortgage interest deduction: Interest paid on mortgages can be deducted by homeowners (on loans up to $750,000 or $375,000 if married and filing separately).
  2. Mortgage points deduction: Points paid on a mortgage are tax-deductible as mortgage interest.
  3. Property tax deduction: Property taxes are deductible for homeowners, with a total limit of $10,000 ($5,000 if married and filing separately).
  4. Residential energy credits: Installing alternative energy equipment like solar panels can qualify for a residential energy credit.
  5. Home office deduction: If part of the home is used exclusively for business, homeowners may be able to deduct related expenses like insurance and repairs.

These are just a few deductions that can significantly reduce taxable income for new homeowners, providing valuable savings during tax season.

How to take advantage of tax deductions 

Claiming these deductions requires a bit of preparation and understanding of the tax process.

To take advantage of tax deductions, you'll need to itemize your deductions on Schedule A (Form 1040 or 1040-SR).

This means you'll choose to list out each deductible expense rather than taking the standard deduction.

Keeping thorough records of all related expenses—including your Closing Disclosure and property tax statements—is crucial for accurately reporting and maximizing your deductions.

Here are the most common IRS forms you’ll need as a homeowner:

  1. Form 1040 or Form 1040-SR: Taxpayers must file either of these forms and itemize their deductions.
  2. Form 5405: This form is used for the repayment of the First-Time Homebuyer Credit.
  3. Publication 530: Provides tax information for first-time homeowners, detailing deductible expenses and record-keeping requirements.
  4. Form 1120-H: If you are part of a homeowners association, this form is used for filing U.S. Income Tax Returns.

Why was the first-time homebuyer credit created?

The first-time homebuyer tax credit was created during the 2008 financial crisis to make purchasing a home more affordable for Americans.

It aimed to provide financial assistance to first-time homebuyers, offering tax credits of up to $15,000 or 10% of a home's purchase price, whichever is less.

Why do some homebuyers have to repay it?

Some homebuyers have to repay the first-time homebuyer tax credit because it was initially designed as a loan that needs to be repaid over time.

Homeowners who claimed this credit, particularly in 2008, are required to repay it to the IRS gradually, typically over 15 years.

When did the credit end?

The first-time homebuyer tax credit program ended in 2010.

If you purchased a home before 2010 and qualified for the First-Time Homebuyer Credit at that time, you would have needed to claim the credit on your tax return for the year of the purchase.

The credit was primarily available for homes purchased in 2008, 2009, and part of 2010.

For those who took advantage of the credit:

  • 2008 Purchases: The credit for homes purchased in 2008 acted like an interest-free loan and must be repaid over 15 years, starting with the 2010 tax year.
  • 2009 and 2010 Purchases: For homes bought in these years, the credit does not need to be repaid unless the home ceases to be the taxpayer's primary residence within the first 36 months of ownership.

Planning for future tax seasons as a homeowner

There are several strategies new homeowners can adopt to maximize tax benefits in future tax seasons.

Consider making energy-efficient upgrades or significant home improvements, many of which may qualify for additional tax credits or deductions.

Carefully planning these projects can enhance your home's value and also lead to substantial tax savings over time.

Regular consultation with tax professionals can help you stay abreast of evolving tax laws and capitalize on all available homeownership benefits.

Proactive financial planning ensures you leverage every opportunity to reduce your tax liability and enhance your financial well-being.

Filing taxes as a new homeowner—conclusion

Successfully employing the available tax benefits of new homeownership can significantly impact your financial landscape, offering opportunities for substantial savings.

By leveraging the key deductions available, efficiently using the necessary IRS forms, and planning strategically for future tax seasons, homeowners can make informed financial decisions that optimize their tax benefits.

MIDFLORIDA stands ready to assist you in unlocking these financial benefits, providing the tools and resources needed to make the most of your new home purchase.

Ready to become a new homeowner?

Start your application with MIDFLORIDA today, and let us help obtain the best home mortgage, ensuring your journey is as rewarding as possible.

This blog provides general information and is not intended to be tax advice. You should consult a tax adviser for further information regarding the deductibility of interest and other charges.

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