1. /
  2. Blog
  3. / Filing Your Taxes After You Buy a Home

Filing Your Taxes After You Buy a Home

Woman looking at receipts and man using a laptop.
  • Written on April 06, 2022 By Stanley Martin Homes

The season is upon us, and we’re not talking about spring. You know, the time of year that all new homeowners have been waiting for? It’s tax season! Monday, April 18th is the deadline to submit your 2021 tax returns or file an extension. Now that you’ve found your dream house, the offer is accepted and the closing paperwork is signed, there’s more to think about during tax filing season. Let’s take a look at a few key factors when filing taxes after buying a home.

  • Tax deductions vs. credits: After purchasing a home, you’ll most likely hear about tax deductions and tax credits, but there is a difference between the two. A tax credit is money taken off of your tax bill, while a tax deduction lowers your adjusted gross income (AGI), which in turn reduces your tax liability. The lower your taxable income is, the lower your tax bill will be.
  • Mortgage interest deduction:This is a common tax incentive for homeowners. It’s an itemized deduction that allows you to count the interest you pay on the loan from taxable income. The loan must be related to building, purchasing or making improvements on a residence. The mortgage interest deduction can be taken on vacation residences and second homes if it stays within the limitations.
  • Mortgage points deduction: Did you pay mortgage points to your lender as part of your loan? Generally, each purchased point equals 1% of the mortgage amount and typically lowers your interest rate by 0.25%. If you gave the lender money for these points, then you qualify for a deduction! If you’re not quite sure what you paid in mortgage points, don’t worry, your lender will send a Form 1098 with all the information you need.
  • Private mortgage insurance (PMI): If you've made a down payment that is less than 20% of the home's purchase price, then you'll have to pay PMI. PMI is a type of insurance that's a requirement for borrowers as a condition of conventional loans. Essentially, it helps people qualify for a loan that they would not be able to get otherwise. When it comes to filing taxes, you might be able to treat your PMI as home mortgage interest and deduct your PMI payments, depending on your income.
  • State and local tax deduction: Certain taxes paid to your state and local government can be deducted as long as you itemize your federal return. While this deduction used to have no limits, in 2017, a $10,000 ceiling was enacted. Check your 1098 form or personal record to find out if you pay your property taxes through your escrow account or directly to your municipality.

Filing taxes can feel overwhelming, but when you step into the season prepared, you just might find that being a new homeowner has its financial benefits. Keep in mind, most of the expenses from your home purchase won’t be deductible until the year after your home purchase. If you’re ready to buy a home and reap the benefits during tax season, our team at Stanley Martin Homes is here to help!