How to Buy Your First House - Quicken Loans Zing Blog

Purchasing a home is a life-changing event. You’re suddenly responsible for a number of things you may not have been responsible for if you rented in the past, including mowing the lawn, shoveling the driveway or repairing a leaky roof. There’s a whole other aspect to owning a house apart from a few additional chores, though. Your home also affects your taxes.

If you’re already a homeowner, this probably isn’t news to you. However, if you’re in the market for your first home, I’ve got some valuable information for you. Below you can find information about what you can and can’t deduct, available tax credits and other tips for you to become a tax savvy homeowner!

Do You Get a Tax Credit for Buying a House?

The answer to this question is maybe. It depends on what you qualify for, and things are a bit nuanced. For now, let’s start with a more basic question: What is a tax credit?

Tax credits are items that’ll lower your overall tax bill. These credits can be refundable or nonrefundable.

Nonrefundable tax credits can be used to reduce someone’s individual tax liability down to $0. This means that if you owed $500 in taxes and qualified for a $700 credit, you wouldn’t owe any taxes, but you also don’t get the $200 back. In contrast, if the credit is refundable, you’re entitled to the full amount if you qualify no matter what your tax bill is. This can be used to increase the size of your refund. For that reason, refundable credits are considered to have the biggest benefits for the taxpayer.

Is There a Tax Credit Available for First-Time Home Buyers?

When it comes to your federal taxes, the answer to this question is technically yes. Although the refundable first-time home buyer tax credit existed between 2008 and 2010, if you entered into a contract to buy a primary residence before April 30, 2010 and closed by September 30 of that year, you may still be eligible if you’ve never claimed the credit before.

If you bought a home in 2008 with the credit, it functions like an interest-free loan. If you claimed the full amount of the credit, $7,500, you have to repay it in $500 installments over the next 15 years, beginning with the year after the credit is claimed. We have more information on repayment.  If the house season is to become your primary residence at any point during that 15-year period, whatever balance you have left is owed on your next tax return.

If you bought a home in 2009 or 2010, you don’t have to repay the credit unless you stop using the home is your primary residence within three years of the date you closed. If you did, you pay off the full balance.

Individual states may have their own credits available for first-time home buyers, but down payment assistance is far more common. A good place to start your search for state programs is the local home buying page maintained by the Department of Housing and Urban Development (HUD).

Mortgage Interest Credit

The other type of credit that’s available on federal taxes is the mortgage interest credit. It’s intended to help low-to-moderate income families afford homeownership. Unlike the mortgage interest deduction, which we’ll discuss below, this can directly lower your tax bill.

In order to claim the deduction, you have to get a mortgage credit certificate (MCC) from an authorized state or local government agency. The credit is limited to up to $2,000.

What Is Tax Deductible?

Tax deductions aren’t money you get back on your refund, but they do reduce your taxable income, thereby potentially lowering your tax bill. Let’s go over some of the deductions homeowners can take.

Mortgage Interest

A new mortgage means a little more work for you when it comes time to file your taxes. However, the extra work is worth it in the end. Perhaps the most important tax deduction you need to be aware of is your mortgage interest. At year-end, check out Form 1098 from your lender to see how much mortgage interest you’ve paid.

In most cases, mortgage interest is fully deductible. There are limits, though. First, the mortgage has to be for the purpose of building, buying or remodeling your home. This is referred to as home acquisition debt. You can also only deduct interest on your primary home and a single vacation residence.

Secondly, there are limits on the amount of the mortgage you can take out.

Because of changes that came in with last year’s Tax Cuts and Jobs Act, if you got a mortgage on or after December 15, 2017, the limit on the amount of mortgage debt you can claim this on is $750,000 for single people, heads of household or joint filers (or $375,000 for people who are married and filing separately).

If you purchased your home before that date, your grandfathered in under the old limits, which were $1 million or $500,000 if married and filing separately.

If you take the mortgage interest credit mentioned above, you can still deduct your interest, but you need to reduce the deduction by the amount of the credit.

Mortgage Points

Simply put, mortgage points are prepaid interest. You can purchase points to lower your interest rate when you get your loan. By purchasing points, you can save money in the long run if you stay in the home for a certain period of time, depending on the amount of points you purchase.

For example, if you have a $200,000 mortgage and buy two points, you’ll owe $4,000 for those points at closing. (Each point is 1% of the value of your mortgage.) If buying the points lowers your payment $250 a month, you’ll have to stay in your home for at least 16 months to break even. After that time passes, you’ll start putting money back in your pocket.

One thing to note is that you can’t deduct mortgage points all at once in the vast majority of cases. You have to spread the deduction over the term of the mortgage. There are limited exceptions.

State and Local Tax Deductions (SALT)

You can also deduct your state and local taxes as well as real estate taxes. There’s now a limit of $10,000 on this deduction. Previously, you could deduct every dollar of state and local taxes.

Is PMI Tax Deductible in 2018?

For right now, private mortgage insurance (PMI) isn’t deductible for the 2018 tax year. The same is true for mortgage insurance premiums (MIP) on FHA loans and USDA guarantee fees.

Rep. Julia Brownley of California has introduced the Mortgage Insurance Tax Deduction Act of 2019. It seeks to make the mortgage insurance deduction permanent for the majority of Americans. In its current form, the bill would make mortgage insurance deductibles retroactive to this year.

It should be noted that this has just been introduced in the House of Representatives and referred to the United States House Committee on Ways and Means. If it gets out of there, then the whole House has to approve it. Then it goes over to the Senate and the whole process starts all over again. If the Senate passes it and there are no differences in the bill, it goes directly to the president for his signature. If there are differences in the House and Senate bills, a conference committee has to hammer out a compromise bill that gets passed by both chambers which then gets sent to the president.

If the president vetoes the bill, it can still go into effect if passed by a two-thirds majority of both chambers of Congress. This is a good summary of the process.

Sorry about the mini government lesson. But it was a long way of saying that while there’s still hope that mortgage insurance fees for this year might be tax-deductible, there’s still a ways to go.

Are There Any Tax Breaks for Homeowners?

We’ve included this category because this last tip doesn’t fall into being a credit or deduction.

You can withdraw from your IRA once in order to fund a down payment as a first-time home buyer. If it’s a traditional IRA, you’ll need to pay income tax on the withdrawal, but there’s no penalty. If it’s a Roth IRA, you don’t have to pay income tax on the withdrawal because you paid income tax already when you put in the money.

You can also borrow from your 401(k), but you do have to pay it back.

While we’ve tried to provide in general tax advice here, everyone’s situation is different. If you have any doubts, please feel free to consult a financial advisor, tax professional or tax preparation software.

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This Post Has 80 Comments

  1. I closed on my house Nov 2015 and my closing cost was $4500 but because of my mortgage being sold to a different company my 1st payment was not due till Jan 2016 so when I got my 1098 for end of year report it read 1. Mortgage interest paid 0. 2. Points paid on purchase 0. 3. Refund of over paid interest 0. 4. Real Estate Taxes Paid 0. How would this help me with my refund amount?

    1. Hi Quentin:

      It won’t help you on your 2015 return, but interest will be deductible on your 2016 return when you start paying interest every month as you make your mortgage payment.

      Thanks,
      Kevin Graham

  2. We purchased our home in March of 2015 I know now there is no first home buying credit available what about the money we put into our house is that a write off for the 1st year? We probably put about 10,000.00 into it for upgrades can we write it off?

    1. Hi Cari:

      The best thing to do is just document all the upgrades you made and the cost and take them to a tax adviser. They’ll be able to tell you all the tax breaks you can get in your local area.

      Thanks,
      Kevin Graham

    1. Hi Jaime:

      I’m going to recommend you talk to a tax adviser. It sounds like your situation may be a bit complex.

      Thanks,
      Kevin Graham

  3. I purchased a home in feb/2015 while i was doing my taxes on TurboTax I added in all my intrest paid and real estate taxes and morrtgage premiums. My return did not increase when those numbers were added. Could I be doing something wrong as I thought I should get more money back with these credits?

    1. Hey Sasha:

      I would think you should be getting some money back. It’s possible you did something wrong I suppose. If you can, I would consult a tax adviser or have someone else look at it.

      Thanks,
      Kevin Graham

  4. Hello,

    I had to pay closing costs on my first time home purchase in October of 2015. Can these be deducted? If so, how?

    Thanks!

    1. Hi Tyler:

      You won’t be able to deduct all of your closing costs, but you can definitely deduct the cost of any points you paid for to buy down your rate because this is prepaid interest and falls under the mortgage interest deduction. In most cases, mortgage interest is fully deductible and if you paid $600 or more in mortgage interest your lender will send you a 1098 to include with your tax return. Although interest is deductible for most people, we recommend talking to a tax adviser.

      Thanks,
      Kevin Graham

  5. My fiancé and I bought our first home in April 2015 and she only got form 1098 in her name from lender, since she was Primary on the loan, and I am co-borrower. Can I claim deduction on interest paid for 2015 taxes from what her form says? We both live in the house and we split/invested 50/50 in everything including at time of purchase!

    1. Hi Pablo:

      If you’re a co-borrower, your income was considered along with hers and if you’ve been making equal portions of the payment, there may be a way to prove that to the IRS, but I would consult a tax adviser.

      Thanks,
      Kevin Graham

  6. I bought a house with a friend. Is a two family house .Is FHA loan . Everything is half and half
    We did a lot of renovation on the first floor
    New kitchen new hardwood floors and more
    Beautiful everything . We bought the house short sale very good price . My friend lives on the first floor and tenant in the second floor I don’t pay anything from my packet the mortgage gets paid by my friend and tenant
    I have a one family house that I live nat to fare
    My questions is : because my friend lives in the house and I don’t does she get anything like 1% back from the interest that she pay the mortgage
    What are the benefit for here for staying inthe house ? In general as much info as u can

    1. Hi Manjola:

      Because she pays for the mortgage, she does get to deduct the mortgage interest from her federal taxes, if that’s what you’re asking. You can also deduct local property taxes and mortgage insurance from state and federal returns.

      Thanks,
      Kevin Graham

  7. I bought my house with cash on November 6th the seller paid property taxes I didn’t pay until January 31 do I have to claim house on my 2015 taxes

    1. Hi Brenda:

      There are many benefits to claiming your house on your income taxes. For starters, you have a mortgage interest deduction and you can deduct the cost of any points. You can also deduct any property taxes you did pay from your state and federal tax return as well as the cost of PMI and MIP. There may be other deductions you can get at the state and local level.

      I would consult a tax adviser.

      Thanks,
      Kevin Graham

  8. Hi I purchased my first home in August of 2014. I usually do my own taxes but because I purchased a home I took it to a local tax lady. She stated I didn’t qualify for any thing for first time home buyer but if I updated anything within the next year like installation or new Windows then I would. I’m just confused cause many people have told me I should of qualified for a first time home owner tax credit. Illinois any info would b appreciated

    1. Hi Jennifer:

      The federal credit for first-time homeowners has expired. It’s possible that that may have been what she was referring to. That said, there may be programs for new homeowners at the state and local level that you could look into. If you have any doubt about the advice she gave you, you could always solicit the advice of another tax professional.

      Thanks,
      Kevin Graham

  9. I bought my first home back in August. 2014. I usually do my own taxes but because of buying a home I took them to a lady… However she stated I didn’t get anything for being a first time home buyer but if I made any repairs such as installation or new Windows within the next year I would qualify. I’m just confused cause many people have told me I should of qualified for being a first time home owner. In Illinois. Any input for this situation.

  10. I was wondering about how to get the homeowners tax credit form I think it is form 5045 or 5048? I just bought my home in 04/2015?

    1. Hi Erin:

      I’m going to assume you mean Form 5405 which involves the first time homebuyer tax credit. This tax credit is no longer available through the federal government for homes purchased after 2010. There may be separate programs available in your state. Contact a tax adviser.

      Thanks,
      Kevin Graham

  11. Hello, I closed on my new home in November but didn’t pay my first payment until January 1st 2016, will have to do anything different on my tax return this year or will the all tax breaks go to my 2016 return?

    1. Hi Adam:

      I would assume any applicable tax breaks for the actual buying of the home would apply to the year in which you actually bought the house, but things may vary from state to state. You should really consult a tax professional.

      Thanks,
      Kevin Graham

  12. Hi. I was trying to do my taxes using Turbotax, and it shows that the first time buyers tax credit isn’t available any longer. It did ask for the I terest and property taxes though. We purchased our first home in July of 2015. Will we qualify for the FTB credit?
    Thanks!

    1. Hi Lisa:

      The federal first-time home buyer credit ended in July 2010 and is no longer available. There may be programs in your state. I would consult a tax adviser.

      Thanks,
      Kevin Graham

  13. I purchased my first home in the end of sept, I am trying to file my taxes on my own, but don’t know how to get the info I need. How do I get form 1098? Do I need to contact my lender?

    1. Hi Allison:

      Your lender will send you your 1098. If you don’t get it in the next few weeks, I would contact them. Hope this helps!

      Thanks,
      Kevin Graham

  14. I BOUGHT FINALLY CLOSED ON MY HOUSE AT THE END OF OCT 2015. MY 1ST MORTGAGE PAYMENT WAS IN NOVEMBER, ARE THERE ANY TAX CREDITS OR BENEFITS I AM ELIGIBLE FOR? AND IF SO WHAT WOULD THEY BE.

    1. Many of the tax credits you can get depend on what state you’re in, Denice! I’m going to have a Home Loan Expert reach out to you so we can get more information on your personal situation.

      Thanks,
      Kevin Graham

    2. I also closed on my home on November of 2015. My first payment was due Dec. I also paid property taxes from my original close date. My loan is still waiting to be picked up by Chase so I’m making payments to my lenders. I have a usda loan what credits can I expect and since I completed improvements are those a deduction too. Remodeled partial kitchen flooring and cabinets.and bathroom. New flooring and sink as well as tile. What do I take to tax person for these deductions if any.

      1. Hi Mary:

        I can’t tell you exactly what deductions you would qualify for since taxes are so dependent on where you live. We also don’t handle USDA loans. I can tell you you should take any record of how much you’ve spent on renovations to the tax person of your choice. They would also be able to tell you if you qualify for any deductions based on the purchase. Hope this helps!

        Thanks,
        Kevin Graham

  15. My husband and i purchased a home in 2015. Our mortgage is in his name but both of our names are on the deed. Can we still file a joint return on our taxes or should we file seperate?

    1. Hi Kayla:

      I recommend speaking with a tax adviser. The way you should file your taxes is unique to your personal situation. Your mortgage shouldn’t have an impact on that necessarily.

      Thanks,
      Kevin Graham

  16. I am all ready in the process to get a loan through you guys. My question is since I am first time home buyer what benefit do I get from it if any? Also was told today that I qualify for one of your programs at 1% down? Could you please email me some info on these 2 questions. Thank you so glad I picked you guys

    1. Hey Danny:

      It’s true that one of our new programs is 1% down. We can email you about this and first-time home buyer benefits. Thanks for reaching out! We’re glad to have you as a client!

      Thanks,
      Kevin Graham

  17. I bought my first home this year. I don’t have a mortgage because I used the cash from an insurance settlement to pay for it. Do I still qualify for a credit?

    1. Hi Hazel:

      The tax breaks mentioned in this article mostly center around the mortgage. However, you would only pay property tax for the portion of the year that you actually own the property if you just bought your home. There may be other credits you qualify for. I suggest consulting a tax adviser.

      Thanks,
      Kevin

  18. Thanks to you for your web site, for being so informing. There are so many unethical and unprofessional people out there that’s taken advantage of people who’s trying to purchase a home/not a house for the first time,

    1. That’s a great question, Al. I’m going to have a home loan expert look into this. They will send you an email, asking you a few questions about your specific situation. And then they’ll give you the best possible answer! Have a good week.

  19. I bought a home in 2015. I read somewhere that there is a $7500 tax credit? Is that correct? If yes, can you provide more information on this credit?

    1. Unfortunately, tax credits can be specific to your area, loan type etc. You would need to speak with a CPA in order to verify what tax credits are available to you. Let us know if you have any more questions!

    1. Hi Jen! When you agree to move forward with your loan they would be on your documents. It could say points, discount points, mortgage points, or loan discount fee. Hope that helps. If you have any other questions let us know!

  20. This was very helpful!
    I have a couple questions:
    1) what happen to the First Time Buyer Credit people used to receive?
    2) How much over per month should you pay, to see a difference in my interest rate and does it make a difference?

    thank you

    1. Hi Tiffany! The First Time Buyer Credit expired on September 30, 2010. As for your second question, when you pay more than your monthly payment, that goes towards your principal which means you’ll be paying less interest but it does not affect your interest rate. Here’s a link to one of our blog posts specifically about amortization with a video and a link to our amortization calculator which may be helpful. If you have any other questions let me know! http://www.quickenloans.com/blog/understanding-mortgage-amortization

    1. Hi Daniel! You have more options available to you when your score is above 650, but there are options available for people with credit scores of 620, and even 580.

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