What to Expect for Your First Tax Season as a Homeowner

Quick Answer

Mortgage interest, property taxes and mortgage points are deductible on your federal taxes. Gather up your closing documents and Form 1098 to find out how much you can save.

A first-time homeowner confidently staring at her online taxes on her laptop while holding a mug.

Congratulations to you if you bought a home in the past year. You got your credit and financing together, navigated a difficult homebuying market and staked a claim on the American dream. Now, how will your purchase affect your taxes?

First-year homeowners have a number of potential deductions to consider at tax time. Although it may or may not be worthwhile to itemize and claim these deductions, it's a smart idea to total them up and see. Here's what to know about owning a home and paying taxes.

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Itemized vs. Standard Deductions

To claim the deductions outlined below, you must itemize deductions on your tax return. The standard deduction is available to any taxpayer as a deduction from your adjusted gross income. For the 2022 tax year, standard deductions are:

  • $12,950 for single filers and married people filing separately
  • $19,400 for heads of household
  • $25,900 for married, filing jointly

It's generally worth itemizing if your total itemized deductions exceed the standard deduction for your filing status. If this is your first year filing as a homeowner, try adding up the itemized deductions shown below plus any additional deductions you have, including qualifying medical expenses and state income taxes, to see how much you could deduct. If your itemized deductions aren't greater than the standard deduction, you may want to skip itemizing and claim the standard deduction instead.

1. Mortgage Interest

You can deduct interest you paid on your mortgage throughout the tax year, but only on the first $750,000 of your loan (or $375,000 if you're married filing separately). Your mortgage lender will mail you Form 1098: Mortgage Interest Statement at the end of January. It shows how much interest you paid during the prior calendar year.

For mortgage interest to qualify for a tax deduction, your loan must meet the following requirements:

  • It's a secured loan. Your loan must be secured using your qualifying home as collateral.
  • It's secured by a qualifying home. A qualifying home is a house, condominium, cooperative, mobile home, house trailer, boat or other property that has sleeping, cooking and toilet facilities. Only your first or second home qualifies.
  • It's used to buy or build your home. The loan must be used to buy, build or substantially improve your home. If you're using mortgage funds to pay off credit cards or purchase a car, your mortgage interest may not be fully deductible.

2. Prepaid Points

Mortgage points are interest you prepay when you take out a mortgage. If you paid points when you financed your new home, these points may be deductible on your federal taxes.

You may be able to deduct the full amount you paid for points in your first year of home ownership, but check IRS rules to see if you qualify. Among other restrictions, your mortgage must be eligible for the mortgage interest deduction; you must use the cash method of accounting; your points must be computed as a percentage of your loan amount; and points must be shown clearly on your mortgage settlement documents. If you don't meet these qualifications, you may have to deduct points proportionately over the life of the loan.

3. Property Taxes

State and local property taxes are deductible, as are state and local income taxes, sales tax and personal property taxes such as vehicle registrations. Your combined state and local tax deduction is limited to $10,000, or $5,000 if married filing separately.

4. Some Home Improvements

To be fair, most home improvements are not tax-deductible. However, if you made modifications to your home to accommodate a medical condition or disability, those expenses may be deductible.

Although upgrades and repairs you make for remote work as an employee aren't deductible, some home office expenses may be if you operate a business out of your home. Additionally, you may be eligible for tax credits if you installed energy-efficient improvements such as windows or insulation, and a separate 30% tax credit for installing solar panels.

You Can't Deduct These Home Expenses

Although a few of the items below may be partially deductible as office-in-home expenses for your business, the following expenses are generally non-deductible on your personal tax return:

The Bottom Line

Once you've totaled up your eligible deductions, compare your potential savings against the standard deduction and choose whichever option saves you more. This exercise should also help you estimate your yearly deductions going forward, though results may vary if you only made mortgage payments for part of the past year.

If you itemize your deductions, save your Form 1098 and closing documents along with your taxes. Your closing documents may be useful for future reference: You may want to keep them indefinitely.