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Tax Deductibility for First Time Home Buying

Owning your home means a lot of different things. It provides you with a place to call your own, and that sense of security and happiness means a lot to people. When you're a first time home buyer, there's another important benefit that you won't really notice until a certain time of year – tax time. That's because there are certain tax breaks offered to first time home buyers that help offset the costs of buying a home.

Many of these were put in place as incentives for home buyers, as a way to help kick start the housing market again. Others have been on the books for years. Here's a quick rundown of the biggest aspects of tax deductibility for first time home buyers.

  • Mortgage Interest Deduction– This is just what it sounds like, and is one of the best tax breaks out there for homeowners. Now that you own your own home, you can deduct your mortgage interest. However, you will have to itemize your deductions, so plan on spending a little more time with your tax forms that before. You're allowed to deduct the interest for as much as $1 million in home related debt, as well as prepaid interest you might have paid initially. Your lender will send you Form 1098 at the end of each year, detailing the amount of interest you've paid.
  • Mortgage Point Deductions– Mortgage points include things like maximum loan charges, loan discounts, loan origination fees, and more. Every point equals 1% of the overall purchase price of the home, and can be deducted. However, there are various restrictions on these deductions that can make this much more complicated.
  • Property Taxes– Another thing that you can deduct from your taxes is the property taxes you've already paid. Whether you've paid them in a single payment or in two installments, you can write this amount off of your year-end tax bill.
  • Insurance – Many people have to pay for private mortgage insurance. This is often included in your monthly mortgage bill, and if you pay it you'll see it on the 1098 form your lender will send in to you. And like other aspects of your mortgage, it's tax deductible.
  • Energy Credits– As a homeowner, you'll also be eligible for certain tax credits if you've made energy efficient improvements to your home. Things like solar panels, insulation, energy star windows, fuel cell systems, and more could qualify. Federal and state tax credits exist for these, so be sure to look into all of the different credits available to you.

While you can handle your taxes on your own, it's often in your best interest to turn to a tax preparer who has experience in the field. There are numerous tax credits and deductions associated with being a homeowner, and there's a good chance that you may miss some of the more effective deductions if you're not experienced at understanding them. Either way, your home is a valuable investment that will reward you in numerous ways – personal and financial. Be sure to look into all the tax breaks available to you.

Best Tax Credit and Deduction Strategies for First Time Home Buyers

by June Bloom

Many people want to buy a home to live the American Dream of owning the place where they live. They also want to be able to decorate and modify it as they like. But there are of course many other great perks to owning your own residence. Some of these are significant financial and tax benefits that can greatly improve your financial situation every year.

Most of these benefits come in the form of tax deductions that you take at the end of the year. These deductions help to lower your income so that your taxes are lower. Most of these deductions can be taken for buying a single family home, a townhouse, mobile home or condominium. While taking tax deductions does make your taxes more complex, you will be saving potentially thousands of dollars per year, so it is all worth the hassle.

#1 Mortgage Interest Deduction

For the vast majority of people who buy a home, they do so with a mortgage. A first time home buyer and most other home buyers may deduct all of their mortgage interest each year. In January, your mortgage lender will send you a statement that says how much mortgage interest you paid in the last year. It also will include any interest you paid at closing. You can deduct all of your mortgage interest from your income, which will save you at least a thousand dollars or so in taxes for most middle income Americans.

#2 Real Estate Taxes Deduction

All of your property taxes that you paid are fully deductible too. If you pay these taxes through an escrow account, you will find how much you paid in real estate taxes on the same form from the IRS that your mortgage interest paid is on. Also, if you reimbursed the home seller for any taxes they had to prepay while you owned the home, you can include these payments as well to be deducted.

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#3 Point Deductions

When you got your new home loan, you might have paid some points to your lender. Points are priced as a percentage of the home loan. So if you paid $250,000 for your house, each point cost you 1% of the value, which is $2500. If you gave the lender money for the points, then you can take it as a deduction on your taxes. If you did a refinance of an existing loan, or if you took out a line of credit on your home, you get a deduction for points over the life of the loan. Every time you make a payment, a small amount of the points is included in the loan. You may deduct that amount for every month you are making payments.

#4 Private Mortgage Insurance Deduction

You will probably be able to deduct your private mortgage insurance premiums. The lender will charge you PMI if you have put down less than 20% when you bought the home. Note that if you are single and your adjusted gross income is less than $50,000, you can take this deduction. If your income is above $50,000, the deduction starts to be phased out. If you are married, the threshold to take this deduction is $100,000.

#5 Selling Your Home Deduction

When you eventually sell your home, you probably will not have to pay taxes on the profit. If you owned and lived in the property for two of the last five years before you sold it, you will not need to pay taxes on the first $250k of profit. If you are married, you don't have to pay taxes on the first $500,000 in profit. Note that both spouses must meet the above residency requirement.

#6 Tax Credits

If you make some energy efficiency improvements to the home, such as solar panels, you may be able to qualify for a 30% tax credit to install such systems.

The federal government structures the tax code so that owning a home has several tax advantages. It is made particularly friendly for people who have a mortgage. The government knows that people who own their own home buy more goods and services to fix up the home, which makes neighborhoods look better and it also stimulates the economy.

While buying a home can save you on taxes, remember that if you are in the 25% tax bracket, you still pay most of your mortgage interest without deductions. So even though you get tax advantages with a mortgage, you still should try to pay down your mortgage as soon as you can. Paying as little in interest as possible will always be the best financial move. In the meantime however, buying your first home will provide you with tax benefits that can improve your financial situation every year.


First Time Home does not offer mortgages or direct financing. is a website that offers information about house financing and does not guarantee 1st time home mortgage programs directly or indirectly through representatives or agents. provides a news and information service by offering editorial content related to the housing and mortgage industry.

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