I Purchased a House. How Do I File It on My Taxxes?

Buying a house is a significant life milestone with important tax implications. Understanding how to properly file your home purchase on your tax return can lead to potential savings and ensure compliance with tax regulations.

Documenting the Purchase

When purchasing a home, documenting the transaction accurately is essential. Gather all relevant paperwork, such as the closing disclosure, which outlines the final terms and costs of your mortgage, including the loan amount, interest rate, and closing costs. This document is crucial for tax reporting. Additionally, keep the deed and title insurance documents to confirm your legal ownership of the property.

Maintain records of additional expenses incurred during the purchase, such as receipts for inspections, appraisals, and legal fees. While these expenses are not directly deductible, they may affect your home’s basis, which is important for calculating capital gains taxes if you sell the property. Keeping a comprehensive file of these documents will aid in both current tax filings and future financial planning.

Mortgage Interest Deductions

The mortgage interest deduction is a valuable tax benefit for homeowners that reduces taxable income by the amount of interest paid on your mortgage. For 2024, the Tax Cuts and Jobs Act (TCJA) allows deductions on mortgage debt up to $750,000 for loans taken out after December 15, 2017, with a $1 million limit for earlier mortgages.

To claim this deduction, itemize your deductions on Schedule A of Form 1040, which means foregoing the standard deduction of $13,850 for single filers or $27,700 for married couples filing jointly in 2024. Determine whether itemizing provides greater savings than taking the standard deduction. Use Form 1098, provided by your lender, to report the mortgage interest paid. Verify that the interest reported matches your records, including any additional interest paid, such as points at closing for a lower interest rate.

Property Tax Deductions

Homeowners can deduct property taxes, reducing taxable income by the amount paid. However, the TCJA caps the total deduction for state and local taxes (SALT), including property taxes, at $10,000 for both single filers and married couples filing jointly.

Ensure you keep precise records of property tax payments made during the calendar year. These payments are often included in your monthly mortgage payment through an escrow account, and your annual mortgage statement can clarify the total amount paid. If you pay taxes directly to local authorities, retain receipts and statements for documentation.

Points and Closing Costs

Points, or discount points, are fees paid to the lender at closing to secure a lower interest rate. This upfront cost can be beneficial for long-term mortgage holders as it reduces monthly payments and overall interest. One point equals 1% of the loan amount.

Closing costs include fees such as appraisal, title insurance, and origination fees, often ranging from 2% to 5% of the home’s purchase price. Review the Loan Estimate and Closing Disclosure documents to understand these costs and their impact on your finances. While most closing costs are not deductible, some, like points, may be eligible for deductions in certain cases.

Homeowner Tax Credits

Homeowners may qualify for tax credits, which directly reduce the amount of tax owed. The Residential Clean Energy Credit allows homeowners to claim 30% of the cost of installing renewable energy systems, such as solar panels, on their property. This credit applies to both primary and secondary residences and is extended through 2034, with a gradual phase-down beginning in 2033.

The Energy Efficient Home Improvement Credit covers 30% of qualifying home improvements, such as energy-efficient windows and HVAC systems, up to a $1,200 annual limit. This credit resets annually, enabling homeowners to spread qualifying improvements over multiple tax years to maximize benefits. Ensure the products meet IRS energy efficiency standards and retain receipts and manufacturer certifications for documentation.

Filing Requirements

Filing taxes as a homeowner involves additional considerations. Determine whether to itemize deductions based on whether the combined value of your mortgage interest, property taxes, and other deductible expenses exceeds the standard deduction. If itemizing, complete Schedule A and maintain detailed records to support your claims.

For first-time homeowners, update your W-4 form with your employer to reflect changes in your financial situation. Homeownership often introduces new deductions and credits, potentially lowering tax liability. Adjusting withholding can help avoid overpaying taxes throughout the year. If you received a state or local tax refund related to property taxes and itemized deductions in the prior year, report this as income on your federal return.

Meet all tax filing and payment deadlines. The federal tax filing deadline for most taxpayers is April 15, though extensions are available by filing Form 4868. Late filings or payments may result in penalties and interest. Consider using tax preparation software or consulting a tax professional, particularly if your situation involves complexities like rental income or home office deductions.