Filing Taxes After You Buy a House

Buying a home is an exciting milestone. But when tax season rolls around, many homeowners might wonder: What does this mean for my taxes?  

Homeownership comes with many tax benefits, including deductions and credits for things like mortgage interest and property taxes. These deductions can potentially help lower your overall tax liability. 

Tax laws can be tricky though. And the Tax Cuts and Jobs Act (TCJA)—passed in 2017—shifted some of the rules for homeowners.  In this guide, we’ll break down what you need to know about homeownership and taxes, whether it’s your first time filing taxes after buying a house or you’re a veteran at it. We’ll cover the key deductions, credits, and other homeownership tax advantages covered in IRS Publication 530 and elsewhere.

Types of tax deductions related to homeownership

As a homeowner, you’ve got access to several tax deductions that can help lower taxable income. Let’s explore some of the most common ones you might qualify for so you can maximize your tax savings.

Mortgage interest deduction

The mortgage interest deduction allows homeowners to deduct interest paid on their mortgages as an itemized deduction. This can reduce your overall tax liability, especially in the early years of your mortgage when a significant percentage of your payments go toward interest. 

This deduction applies to interest on loans used to purchase, build, or improve your primary residence—or, in some cases, a second home.

Maximum deduction amounts:  

• For mortgages taken out after December 15, 2017, you can deduct interest on loans up to $750,000 (for married couples filing jointly). 
• For mortgages taken out before December 15, 2017, the limit is $1 million (for married couples filing jointly).  

The mortgage interest deduction is part of your itemized deduction calculation reported on Schedule A of your tax returns. If your itemized deductions are higher than your standard deduction, you will be able to deduct your mortgage interest on your tax return.  But how do you know which one to use? Don’t worry. If you file with TurboTax, we’ll guide you through the process step by step.

Private mortgage insurance (PMI) deduction

Private mortgage insurance (PMI) is a policy that protects lenders if a borrower defaults on a loan. PMI is typically required if your down payment is less than 20% of your home’s purchase price. 

Previously, you could deduct PMI premium payments on your tax returns, but as of the 2022 tax year, it is no longer deductible. However, if you paid PMI premiums in a tax year when the deduction was available (between 2018–2021) but never claimed it, you may still be able to retroactively claim it.

Real estate tax deduction

The real estate tax deduction allows you to deduct property taxes paid on primary residences, vacation homes, or land from your taxable income. 

Under the TCJA, the deduction for state and local taxes (SALT)—which includes property taxes and either state/local income or sales taxes—is capped at $10,000 per year for married couples filing jointly ($5,000 if single or married filing separately). 

For example, if homeowners filing a joint return pay $8,000 in real estate taxes annually and $2,500 in state income tax, they can deduct only $10,000 of the $10,500 they paid.  

Note: Many use the terms “real estate tax” and “property tax” interchangeably, but there are essential differences: 

• Real estate taxes typically refer to taxes levied on real property, like land and buildings.
• Property taxes may also include taxes on personal property like vehicles or business equipment. 

This deduction is included as part of your itemize deductions on Schedule A.  Be sure to keep detailed records of property tax payments to ensure you file them accurately on your tax return.

Mortgage points

Mortgage points (also called discount points) are fees paid upfront to your lender at closing in exchange for a lower mortgage interest rate. Each point typically costs 1% of your loan amount and can reduce your monthly mortgage payments over time. 

A major benefit of mortgage points is that you can often deduct them on your tax return, provided you use the loan to buy or build your primary residence and meet other IRS requirements. 

To qualify for the mortgage points deduction:

• The mortgage must be used to buy or build your primary residence. 
• The loan must be secured by your home. 
• The points must be clearly itemized in your loan documents.

Home improvements

Home improvements can have tax benefits, depending on the type of improvement and how your home is used. While most improvements aren’t immediately deductible, they can reduce your capital gains taxes when you sell or even qualify for tax credits if they meet energy-efficiency standards. 

Generally, improvements that increase your home’s value, adapt it for new uses, or prolong its life are considered capital improvements. These include renovations like adding a new room, replacing a roof, or upgrading to an energy-efficient heating system. 

While the cost of these improvements often can’t be deducted in the year you make them, they do increase your home’s cost basis. A higher cost basis can reduce the taxable profit when you sell your home, potentially lowering your capital gains tax liability. 

Some energy-efficient improvements, such as solar panels or energy-efficient windows, may also qualify for tax credits at the time of installation.  
For more details on how home improvements affect your taxes, check out our guide to home improvements and taxes.

Energy credits

Energy tax credits are government incentives designed to encourage energy-efficient upgrades to homes and businesses. These credits reduce both the amount of tax owed and the effective cost of making energy-efficient investments in your home. 

There are two main types of energy credits for homeowners:  

• The Energy Efficient Home Improvement Credit (EEHIC) offers up to $3,200 in overall tax savings. You can claim up to $1,200 annually for eligible energy-efficient home improvements. A separate $2,000 limit applies to qualified heat pumps, water heaters, biomass stoves, or biomass broilers.  
• The Residential Clean Energy (RCE) Tax Credit allows homeowners to claim 30% of the cost of installing qualified clean energy systems, such as solar panels, battery storage, and wind turbines. The credit is available through 2032. 

Itemized deductions vs. standard deduction: Which is best for homeowners?

When filing your taxes, you have two main options: taking the standard deduction or itemizing your deductions. The right choice depends on which one saves you more money.

The standard deduction is a fixed dollar amount that reduces your taxable income without requiring itemized expenses. The amount is based on your filing status. The TCJA increased the standard deduction, making it the better option for many taxpayers. For example, the standard deduction amounts for the 2024 tax year are: 

• Married filing jointly: $29,200 
• Single or married filing separately: $14,600 
• Head of household; $21,900 

Itemized deductions can bring greater tax benefits for homeowners with significant mortgage interest and property tax payments. Itemizing your deductions also allows you to account for specific expenses like mortgage interest, property taxes, medical costs, state and local taxes, and charitable contributions. All of this can reduce your taxable income.  

• Example: If you’re single with $12,000 in mortgage interest, $9,000 in property taxes, and $4,000 in charitable donations, your total itemized deductions would be $25,000—significantly more than the standard deduction of $14,600.  

If your total itemized deductions exceed the standard deduction, itemizing can lower your taxable income. If you’re unsure which option is best, don’t worry. TurboTax will guide you through the process, automatically calculating whether itemizing or taking the standard deduction will save you more.

Other considerations for homebuyers

In addition to the more common tax deduction possibilities listed above, there are other lesser-known tax advantages for homebuyers.  

Here are some of the main ones to consider:

• Home office expenses: If you’re self-employed and use part of your home for business, you may be able to deduct certain expenses. These can include a portion of your mortgage interest, utilities, and repairs directly related to the business use percentage of your home. 
• Interest on home equity loans or home equity lines of credit (HELOCs): Interest paid on home equity loans or lines of credit may be deductible if the funds are used to buy, build, or significantly improve the home. 
• IRA withdrawal for a home purchase: First-time homebuyers can withdraw up to $10,000 from an IRA without penalty to purchase a home. Note that this applies to traditional IRAs. 
• State and local tax benefits: Some states offer tax credits or deductions for first-time homebuyers. These vary by location, so check your state’s programs for potential savings.

Forms you’ll need when filing your taxes after buying a home

After purchasing a home, you will see several necessary tax forms to ensure accurate reporting and maximize deductions. These may include:  

• Form 1040: This is the main individual income tax return where you report your income and deductions. If you itemize deductions, the total amount from Schedule A will be entered here. 
• Form 1098: Your mortgage lender will send you this form if you paid $600 or more in mortgage interest during the tax year. It reports mortgage interest, points paid at closing, and property taxes (if paid through escrow). 
• Form 8829: If you use part of your home exclusively and regularly for business, you’ll use this form to calculate the home office deduction. 
• Schedule A: If you itemize your deductions, use this form to report mortgage interest, property taxes, and other eligible deductions. 

Depending on your situation, additional forms may be required, especially if you took an early IRA withdrawal for a home purchase (Form 5329) or claimed energy efficiency tax credits (Form 5695).  

Not sure which forms apply to your situation? TurboTax will ask the right questions to help ensure everything is reported correctly.

Filing your taxes after buying a home

TurboTax offers excellent options for filing your taxes, whether you prefer to: 

• Get help from a tax professional: Rather file yourself but want guidance from a tax professional? TurboTax Live Assisted connects you with experienced experts who can answer your questions. 
• Let a tax professional file for you: If you’d rather have a tax professional handle everything, TurboTax Full Service pairs you with a local tax expert who’ll file on your behalf.