Buying your first home is an exciting milestone, but did you know it also comes with some valuable tax benefits? While homeownership can feel like a big financial commitment, tax incentives can help you save money and make the transition easier.
Understanding these tax benefits is key to making the most of your investment. And when it’s time to file, professional tax preparation can help ensure you maximize every deduction and credit available to you.
Let’s break down the major tax advantages of buying your first home and how they can put money back in your pocket.
1. Mortgage Interest Deduction
One of the biggest tax benefits of homeownership is the mortgage interest deduction. If you took out a loan to buy your home, a significant portion of your monthly payments likely goes toward interest - especially in the early years of your mortgage.
You can deduct interest on up to $750,000 of mortgage debt if you’re filing as an individual or married filing jointly.
If you’re married filing separately, the limit is $375,000 per person.
This deduction can lower your taxable income, potentially saving you hundreds or even thousands of dollars at tax time. Your lender will send you Form 1098 at the beginning of the year, detailing how much interest you paid, which you’ll use when filing your return.
2. Property Tax Deduction
Homeowners can also deduct state and local property taxes, which can add up to significant savings. The IRS allows you to deduct up to $10,000 (or $5,000 if married filing separately) in combined property and state/local income taxes.
Since property taxes vary by location, this deduction can be especially beneficial in areas where rates are higher. Keeping track of your tax payments throughout the year can make claiming this deduction easier when you file.
3. First-Time Homebuyer Programs & Tax Credits
While there is no longer a federal first-time homebuyer credit, some state and local programs offer tax incentives to help first-time buyers.
Many states provide first-time homebuyer savings accounts, which allow you to set aside money for a down payment while earning tax benefits.
Some states also offer tax credits to offset the cost of purchasing your home.
A tax professional can help you determine if your state offers programs that could reduce your tax burden.
4. Mortgage Points Deduction
When you take out a mortgage, you might pay discount points to lower your interest rate. These points are prepaid interest and can often be deducted in the year you purchase your home.
Each point typically costs 1% of your loan amount and can lead to long-term savings on interest.
If you meet IRS requirements, you can deduct the full amount in the year of purchase instead of spreading it out over the life of the loan.
This is a tax break many first-time buyers overlook, but it can make a big difference when filing your return.
5. Home Office Deduction (If Applicable)
If you’re using part of your home exclusively for work, you may qualify for the home office deduction. The space must be used regularly though and only for business purposes.
The deduction can be based on actual expenses related to that portion of your home. Or, the IRS allows a dedication based on square footage - $5 per square foot (up to 300 square feet).
6. Energy-Efficient Home Credits
If you make energy-efficient improvements to your home, you could qualify for tax credits. The Inflation Reduction Act extended and expanded these incentives, making energy upgrades more financially appealing.
How It Works:
You can claim a credit for installing energy-efficient windows, doors, insulation, or solar panels.
The Energy Efficient Home Improvement Credit offers up to 30% of the cost of qualifying improvements.
The Residential Clean Energy Credit applies to renewable energy installations, such as solar panels and geothermal heat pumps.
7. Capital Gains Exclusion (For Future Sales)
While this tax benefit won’t apply immediately, it’s worth keeping in mind for the future. If you decide to sell your home at some point, you could qualify for the capital gains exclusion, which allows you to avoid paying taxes on a portion of your home sale profits.
If you’ve lived in the home for at least two of the past five years, you can exclude up to $250,000 of profit as an individual or $500,000 if married filing jointly.
Maximize Your Tax Savings with Professional Tax Prep
Owning a home comes with valuable tax benefits, but claiming them correctly requires careful record-keeping and knowledge of current tax laws.
At AMG Finance, our tax preparation services ensure that you don’t miss out on deductions or credits that could save you money. Our tax preparation team helps you navigate the filing process, find every tax advantage available to you, and make sure you get the most out of your first home purchase.
Maximize your tax savings. Contact AMG Finance today and let our tax professionals help you make the most of homeownership.
