First-Time Home Buyer Tax Benefits: Everything You Need to Know

Buying your first home is a big deal. It’s perhaps the biggest purchase you’ll ever make, and it can bring independence, privacy, self-reliance, and stability, as well as set you on the path toward financial security, freedom, and flexibility. But what about filing taxes after buying a house for the first time? When April 15th comes around, you may be left wondering what tax breaks, credits, and incentives are available to you. 

You may have heard that there are tax breaks for first-time home buyers. Unfortunately, first-time home buyer tax benefits aren’t a thing anymore. The new homeowner tax credit was passed in 2008 to help people afford homes, but the program ended in 2010.  

But the good news is that there are a few bills in Congress that might bring this tax credit back if passed. Also, general tax breaks for homeowners do still exist, and you don’t necessarily have to be a first-time homeowner to take advantage of them. You can continue to reap the tax benefits of buying a house for the entire length of time you own your home, even after you sell it. Make the most out of the available tax benefits for homeowners with these tips. 

You Can Deduct Mortgage Interest and PMI 

Under the Tax Cuts and Jobs Act of 2017 (TCJA), you can deduct any interest you paid on your mortgage, as long as you borrowed $750,000 or less. This includes mortgage interest you paid as part of closing costs. If you bought your home on or before December 15, 2017, you’re grandfathered in under the old limit of $1 million, so you can deduct loan interest on mortgages up to that amount. You can snag this homeowners tax credit every year you’re paying on your mortgage and for subsequent home purchases as long as your loan amount is below the threshold. You can also deduct the interest you paid on a home equity loan up to $100,000 if you use that money to improve your home. 

If you borrowed for your home with a down payment of less than 20 percent, you probably have private mortgage insurance or PMI. You can deduct PMI payments if your adjusted gross income is less than $100,000 if you’re married or $50,000 if you’re single. 

You Can Deduct State and Local Taxes 

You can deduct your state and local taxes, or SALT, from your federal taxes, up to $10,000 under the TCJA. If you pay your taxes through an escrow account, you’ll see that amount on your Form 1098. If you pay local taxes directly to your municipality, make sure to keep a record of your payments so you can deduct those from your taxes, too. 

Here’s the caveat: These tax deductions for homeowners need to be itemized to deduct SALT payments, PMI payments, and mortgage interest. SALT deductions and mortgage interest deductions might benefit you at tax time if you live in an expensive, high-tax area. Otherwise, you may be better off taking the standard homeowners tax credit, especially if you’re married. If you’re single, on the other hand, your mortgage interest, PMI, and SALT might easily exceed your standard deduction. Whatever your filing status, compare the itemized deduction to the standard deduction before filing.  

You May Qualify for a Homeowner Exemption 

In many states, some homeowners qualify for a homeowner exemption, which can lower your property tax bill, usually by lowering the assessed value of your home.  

Who qualifies? Well, that depends on your local laws. Typically, these things are decided on the state, county, or municipal level, and requirements can vary widely. Commonly, homeowner exemptions are given to the elderly, people with disabilities, and veterans, but some jurisdictions give them out to homeowners below a certain income threshold or homeowners who make specific improvements to their property, such as planting a rain garden. Typically, you do have to use the home as your primary residence to qualify for the exemption. 

You Can Get Tax Benefits for Some Energy-Efficient Upgrades 

Though you can’t get a homeowners tax credit for most energy-efficient home upgrades anymore, you can still get them for solar panels through 2023 under the federal Investment Tax Credit. If you had solar panels installed between 2017 through the end of 2019, you can get back 30 percent of your costs in the form of a homeowners tax credit. Installing panels between 2020 and 2022 qualifies you to get back 26 percent of the cost, and if you install them in 2023, you can get back 22 percent of the cost. 

You Can Deduct Home Office Expenses 

Whether you work from home full-time or have a side hustle, you may be able to take a deduction for the business use of your home. You can deduct $5 per square foot for up to 300 square feet of office space, for a total deduction of up to $1,500. However, you should make sure that your home office is exclusively used for business purposes, and check with a tax professional to make sure you’re meeting the strict guidelines required to qualify for this homeowners tax credit. 

Final Tips 

If you’ve just purchased a home, chances are that you’re looking into homeowners insurance and a home warranty. These are two important steps you can take to protect your home. However, you cannot deduct homeowners insurance on taxes, nor can you deduct a home warranty—even if premiums are part of your mortgage payment. The IRS considers both non-deductible. 

Before you file taxes as a homeowner for the first time, it’s a good idea to understand how to qualify for first-time home buyer tax credits and deductions. Tax breaks for buying a house bring many advantages at the federal, state, and local levels—one of the many reasons why owning your own home pays off. 

A few more tips for new homeowners like you are to stay up to date on your home’s maintenance by keeping track of your homeowner's yearly checklist. Check out these maintenance tips so that you can save money on your new home by keeping things properly up to snuff. American Home Shield is here to help with resources for first-time home buyers so you can know what to expect beyond filing taxes after buying a house.  

AHS assumes no responsibility, and specifically disclaims all liability, for your use of any and all information contained herein.