Life Events Series: How Will Buying My First House Help My Taxes?
Life Events Series: How Will Buying My First House Help My Taxes?

Life Events Series: How Will Buying My First House Help My Taxes?

Read the Article

A great milestone of your financial life is the purchase of your first home. While less exciting, the tax implications of that achievement are no less critical. After all, home ownership creates several new opportunities for you to save on your taxes.

Mortgage Interest Deduction

That big mortgage payment you now have to pay every month has an upside. The interest portion of every payment is tax deductible. Keep in mind that, at the beginning of your mortgage, most of your payment is interest, meaning that the overwhelming majority of your payment may be tax deductible.

With the recent interest rate hike, you may see an increase in the mortgage interest you pay. An increase in your monthly mortgage payment may not be ideal, but remember that you can deduct your mortgage interest at tax-time, lowering your taxes.

Real Estate Tax Deduction

Money you pay for real estate taxes is tax deductible. While it’s never fun to learn that your property taxes have gone up again, at least you will be able to take some solace in knowing your tax deductions will increase at the same time.

Charitable Donation Deduction

While the charitable donation deduction might seem unrelated to a home purchase, this is income taxes we’re talking about. Before you purchased your home, you may not have had enough tax deductions to itemize your deductions and you may have had to claim the standard deduction instead ($13,850 single, $27,700 married filing jointly, $20,800 head of household for tax year 2023; $14,600 single, $29,200 married filing jointly, $21,900 head of household for tax year 2024).

Why? Since you didn’t have itemized deductions like home mortgage interest and property taxes prior to buying your home, your standard deduction may have been greater than your itemized deductions so you could not benefit from other itemized deductions like charitable contributions. However, when you become a homeowner, the mortgage interest and real estate taxes alone often make it so that you will be able to itemize which means you are now eligible for additional tax deductions.

Don’t forget that in order to claim a tax deduction for charitable donations, you have to donate to a not-for-profit 501(c)(3) charitable organization and typically you need enough tax deductions to itemize your deductions. 

Other Considerations for First Time Home Buyers

Save your closing statement (HUD). When you file your tax return for the first time after buying a home, additional expenses incurred on your HUD may be tax deductible, including prepaid interest (points) you pay at closing.

Save all of your home improvement receipts. You are likely to sell your home one day. Although the sale of your principal residence where you live may not result in income tax, it is possible if you move very quickly or make a very big profit. To lessen the odds you will owe capital gains taxes on the sale of your home, save your receipts for home improvements made, as they can increase your cost and lower your gain when you sell.

Don’t worry about knowing these tax rules. No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed. 

9 responses to “Life Events Series: How Will Buying My First House Help My Taxes?”

  1. Im closing on a house i brought for cash today. Will i have to file it with the irs when i file taxes this year or next year

  2. I bought a house last year and paid cash. Is there a deduction or tax break for first time home buyers without a mortgage?

  3. I normally receive my turbo tax by mail, I have not received it as of yet, however I might need a upgrade I purchased a new home this year and also I am owner financing my mobile home that I used live in.. Any help would be appreciated.

  4. Last year I paid my 2012 taxes in January. This year I am able to pay my 2013 taxes in December. Am I allowed to deduct both since they were paid in 2013?

  5. My husband and I bought our first home 3 years ago. He is very handy and have made some major changes to the house, such as changing a window onto a patio door that has access to the side yard and to a newly built deck. Since this work was not done by a contractor, can we still deduct the cost of these upgrades, AND are these tax deductible when we sell the house or before?

    • Hi Britany,
      The materials and supplies used for the improvements are added to the cost basis of your house. You cannot add the value of your husband’s labor. There is no deduction for them currently.
      When you sell the house, you will include these costs in determining the profit you make on the sale, and if the profit exceeds a certain amount, ($500,000 for a married couple filing a joint tax return) you will be taxed on the excess.
      Mary Ellen

Leave a Reply