Taxation and Regulatory Compliance

If I Bought a House in December, Can I Claim It on My Taxes?

Discover how purchasing a home in December can impact your tax deductions and credits for the year. Learn about key filing considerations.

Purchasing a home is one of the most significant financial decisions individuals make, and it can have notable implications for taxes. If you bought a house in December, understanding the available deductions and credits can help maximize your tax benefits.

Mortgage Interest Deduction

The mortgage interest deduction allows homeowners to subtract interest paid on their mortgage from taxable income. For homes purchased after December 15, 2017, taxpayers can deduct interest on up to $750,000 of mortgage debt ($375,000 for married individuals filing separately). The mortgage must be secured by a primary or secondary residence and used to buy, build, or improve the property.

Only interest paid during the tax year is deductible. If you closed on your home in December, you can deduct interest paid from the closing date through December 31. For example, if $1,000 in interest was paid during this period, that amount can be deducted. This requires itemizing deductions on Schedule A of Form 1040. Keep records like Form 1098 from your lender, which details the mortgage interest paid.

Property Tax Deduction

Homeowners can deduct up to $10,000 ($5,000 if married filing separately) of state and local taxes, including property taxes. This cap applies to the total of property, state, and local income taxes. For homes purchased in December, the deduction depends on property taxes paid during the year. If property taxes were paid at closing or through an escrow account, those amounts are deductible. The settlement statement from your home purchase will outline any property taxes paid, which can be reported on Schedule A of Form 1040.

Ensure you differentiate between deductible property taxes and non-deductible fees like transfer taxes or homeowner association fees. Accurate records of taxes paid are vital to avoid issues with the IRS.

Points Paid at Closing

Mortgage points, or “discount points,” represent prepaid interest that reduces the mortgage interest rate. Typically, each point costs 1% of the loan amount and lowers the interest rate by about 0.25%. Points paid at closing may be deductible in the year of payment if specific criteria are met. The points must be paid directly by the buyer, not financed into the loan, and the loan must be secured by the buyer’s primary residence.

If these conditions aren’t met, points may need to be deducted over the loan’s lifetime. For instance, points paid on a second home or by the seller are generally spread out over the loan term. Consulting a tax professional can clarify eligibility and ensure proper deductions.

Additional Home-Related Credits

Homeowners may qualify for additional tax credits. The Residential Energy Credit supports energy-efficient home improvements, such as installing solar panels or solar water heaters. For installations completed in 2023, homeowners can claim 22% of the qualifying costs.

Another option is the Mortgage Credit Certificate (MCC) program, which benefits first-time homebuyers. This program allows a tax credit for a portion of the mortgage interest paid, with rates varying by state and potentially reaching 50%, subject to a maximum credit amount. To qualify, the homebuyer must have received an MCC from a participating local or state agency at the time of purchase.

Filing Considerations

Filing taxes as a homeowner often involves itemizing deductions, which can be more complex than taking the standard deduction. However, the potential savings may outweigh the complexity. Essential documents include Form 1098 from your mortgage lender, which details mortgage interest paid, and the settlement statement from closing, which shows property taxes paid and points purchased. Cross-check these records to ensure all deductible amounts are accurately reported.

The total deduction for state and local taxes, including property taxes, is capped at $10,000. If you live in a high-tax state, this limit may reduce the benefit of itemizing. Additionally, if your itemized deductions don’t exceed the standard deduction—$13,850 for single filers and $27,700 for married couples filing jointly in 2023—it may not be advantageous to itemize. Carefully calculate which option provides the greater tax benefit and consider consulting a tax professional for guidance.

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