What Are the Tax Benefits of Buying a Home?

February 27, 2015 | by Katie Claflin

Categories: First Time Buyer, Home Rehabilitation/Repairs, Homeownership

Are you thinking of buying a home this year?  If so, there are some significant income tax benefits that you should be aware of. 

Depending on your income, mortgage size and filing status, these benefits can reduce your federal income taxes by thousands of dollars each year.

Mortgage Interest Deduction.  Homeowners can deduct their mortgage interest payments, which can reduce the amount owed in income taxes. While there are limits to the amount of mortgage interest you can deduct, most homeowners qualify for this deduction. 

Property Tax Deduction.  Most people are aware of the mortgage interest deduction, but did you know that you can also deduct the amount paid toward property taxes?  This benefit can further reduce the amount you pay in income taxes.

Click here to view the IRS regulations on mortgage interest and property tax deductions.

Mortgage Credit Certificates. Qualifying first time home buyers are also eligible for a special tax credit known as a Mortgage Credit Certificate (otherwise known as an MCC).  With an MCC, a homeowner can take a portion (up to $2,000) of the annual interest paid on their mortgage loan as a tax credit every year. Note: You MUST apply for an MCC when purchasing your home in order to receive the tax credit. Click here to learn more about MCCs and find out if you qualify for TSAHC’s MCC Program. 

Some homeowners may also qualify for additional tax deductions, listed below:

  • Private mortgage insurance premiums for policies issued after 2006. Note: 2014 is the last year this benefit can be claimed unless it is renewed by Congress.  This benefit also has income requirements.
  • Interest on up to $100,000 borrowed as a home equity loan or line of credit
  • Home improvements required for medical reasons
  • Mortgage “points” paid up front to reduce a homeowner’s interest rate

For more information, check out Turbo Tax’s tax guide for homeowners.

Did you buy a home last year?  Make sure to let your accountant know so they can help you maximize your tax benefits. And remember to file your taxes by April 15th!


On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.

Comments

Lloyd Bronson

I’ll be sure to look into purchasing a house in the coming years. My spouse and I want to move but we are unsure if it will be beneficial for us financially. I’m glad that your article mentions how owning a home will count towards property tax deduction.

Liv Smith

I actually didn’t know that I could deduct the amount paid toward property taxes. My husband and I are thinking about buying a house but we didn’t know the benefits of doing so, so I’m glad you talked about how it can help with the tax deduction. I will keep these things in mind and tell my husband about them, thank you!

Laura Ross

Hi Ashley,  TSAHC’s down payment grant program is available to home buyers that have previously owned a home. To find out if you’re eligible, please visit http://www.readytobuyatexashome.com and take the eligibility quiz.

Ashley Guerin

I already received the MCC. I’m thinking of selling my home and purchasing a home. This would be my first purchase. Are there any programs available that would help me like MMC did?

Thank you in Advance,

Ashley Guerin

Becca Holton

I wanted to learn more about the tax benefits of buying a home since there’s a place I’m interested in purchasing. I didn’t know that it could possibly reduce my federal income taxes by thousands of dollars each year. That’s an amazing benefit that makes investing in a house more appealing.

Cameron Bennett

I like that you mention that buying a home also deducts the amount paid towards property taxes, which can in turn reduce the amount you’d pay in income taxes.  That’s a good incentive to buy a home right now rather than just rent one.  I have been looking into buying a home because I am moving in the next few months, and it’s important to me that I find a realtor that can help find the right home for me.

Amanda Drew

That’s really cool that when you get an MCC you can use up to $2,000 of the interest paid on the mortgage as tax credit. My husband and I want to get a home now that we have two kids. It’s good to know that there are lots of benefits for it, so we’ll have to find somewhere to buy a house from.

Jade Brunet

I appreciate this information about the benefits of buying a home. It is good to learn that there is a property tax deduction. It would also be nice to reduce the amount paid in income taxes. Something to consider would be to use a realtor in the home buying process to make things go more smoothly.

kclaflin@tsahc.org

Hi Irene, thanks for your question. We’re not aware of any grants to tax credits that are available to help with the legal costs of transferring a property. However, if you have any additional legal needs, you may be able to qualify for low-cost or pro bono legal services to help:  http://www.txcourts.gov/programs-services/legal-aid/

Irene

I took out a loan in 2015 to pay a lawyer to have my parents home transfer it to me and my husbands name.  All my siblings had to sign to get this done.  Is there any type of credit I can take.

Lillian Schaeffer

This is some great information, and I appreciate your point that buying a home can give you many different tax breaks. My husband and I just finished college, and we’re considering what our next step in life will be, and we’ve been thinking about buying a home. Knowing that doing so could give us more tax breaks is a comfort, and I think we’ll go forward with it. Thanks for the great post!

Braden Bills

I’m trying to come up with a good way to get a place to stay. I didn’t know that buying in home provided tax benefits! I’ll have to see what my wife thinks about it.

Wade Joel

Most people I think are glad that when they buy a home that they can get some money back in taxes. Sometimes, people just forget that there are a lot of ways we can get tax breaks. Thank you for listing out the tax breaks you can get when buying a home!

kclaflin@tsahc.org

Hi Rose, thanks for your question.  Yes, an MCC enables you to take a portion (up to $2,000) of the interest paid on your mortgage as a tax credit every year over the life of the mortgage.  Click on the link below to learn more about the benefits of TSAHC’s MCC program:

http://www.tsahc.org/homebuyers-renters/mortgage-credit-certificates

If you have any questions, please feel free to contact our Homeownership Hotline at 877-508-4611.

Rose Simmons

Thanks for bringing up the MCC! We’re planning on buying our first home this year, and I’d definitely love to get a tax credit from it. When you said that you can take a portion of the annual interest as a tax credit every year is that for the life of the mortgage? If so, I really hope that we can qualify for it because that would be a lovely benefit in our homeownership!

Ian Johanson

Thanks for your tips. I’m in the process of buying a house. I didn’t know that I could deduct any of my payments from my taxes though. It is probably one of the few things about having a mortgage that would make me happy.

Drew

Many people are not aware of the different tax benefits for buying a home. Thanks for mentioning property tax deductions. Great advice!

Katie Claflin, TSAHC Staff

Hi Cherie, thanks for your question. The link below provides a list of housing expenses that can and cannot be deducted.  The down payment is listed as an expense that cannot be deducted. http://www.irs.gov/publications/p530/ar02.html

Cherie

I bought a house in Dec. 2014 can I write off my my down payment that I put on my house to ($4531.00)?

Leave a Comment