Tax breaks for first-time home owners

Buying a home is a major investment that should not be taken lightly. However, there are a number of tax breaks and incentives available for first time buyers that can help lessen the costs associated with homeownership.

Tax deductions can help significantly reduce the cost of your monthly mortgage payments. If you have claimed the standard deduction in the past, now is the perfect time to go itemized; this can help maximize your deductions and make the most out of the tax breaks that are available to you.

Mortgage interest

For most first time home buyers, the biggest tax break comes from deducting mortgage interest. Homeowners can deduct interest on up to $1 million in debt that has been used to purchase or improve a home. For loans or contracts that originated after December 16, 2017, the limit on debt for binding contracts or loans has been reduced to $750,000.

In January, your lender should send you a Form 1098. This will show how much interest you paid during the previous year; even if it’s not shown on the 1098, you can also deduct interest from the time between when the loan was closed to the end of the month.


Buyers pay “points” to the lender in order to get their mortgage. The points are typically expressed as a percentage of the loan amount and can be deducted as interest.

For example, if you paid two points, or two percent, on a $400,000 mortgage, you would pay $8,000; as long as you put at least $8,000 down in cash on the purchase, you can deduct this amount. If the seller paid the points in your deal, you can still deduct that amount as interest!

Real estate taxes

Local property taxes can be deducted each year. Deductions cannot be made into escrow accounts; only actual, paid real estate tax amounts can be deducted. Beginning in 2018, the total deductions on state, local, and property taxes is capped at $10,000 per tax year.

Mortgage insurance costs

If your down payment was less than 20%, private mortgage insurance (PMI)  is most likely a part of your monthly mortgage expenses. This deduction was for mortgages purchased in or after 2007, but ended in 2017. This write off ends after adjusted gross income increases above $50,000 on individual returns or $100,000 on joint returns.

Other deductions

There are many other deductions that first-time home buyers may qualify for. Energy credits, home improvements, IRA payouts, or adjusting your withholding are all deductions first-time buyers can qualify for. Talk to a tax professional about deductions that you may qualify for this tax year!

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