A great milestone in 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, homeownership 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.
Real Estate Tax Deduction
The 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 (and your resulting income tax savings) will increase at the same rate.
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.
Why? Since your standard deduction was greater than your itemized deductions, you did not benefit from any of the itemized deductions like charitable contributions. However, when you became 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.
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. Most home sales do not result in income tax. However, 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 which can increase your cost lowering your gain when you sell.
Don’t worry about knowing all of these tax deductions, TurboTax will ask you simple questions, and give you the tax deductions and credits you’re eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish, year round and can also review, sign, and file your tax return.