Tax Deductions For First Time Homeowners

If you are looking to buy a house you may want to know what tax deductions you receive as a first time homeowner. There are several standard deductions you receive as a homeowner. To deduct expenses of owning a home, you must file Form 1040 and itemize your deductions on Schedule A (Form 1040). If you itemize, you cannot take the standard deduction.

Now your first question may be what does the IRS define as a home? Your first home may be a house, condominium, cooperative apartment, mobile home, houseboat, or house trailer.

If you took out a mortgage (loan) to finance the purchase of your home, you probably have to make monthly house payments. Your house payment may include several costs of owning a home. Generally, your real estate taxes and home mortgage interest are included in your house payment. The only costs you can deduct are real estate taxes actually paid to the taxing authority and interest that qualifies as home mortgage interest.

Real estate taxes are the annual tax on the value of real property. You can deduct the tax if it is based on the assessed value of the real property and the taxing authority charges a unique form rate on all property in its jurisdiction.

Home mortgage interest is the interest you pay on a loan secured by your main home or a second home. The loan can be a first or second mortgage, a home improvement loan, or a home equity loan.

Generally, you can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). Deductible sales taxes may include sales taxes paid on your home (including mobile and prefabricated), or home building materials if the tax rate was the same as the general sales tax rate. Note that if you elect to deduct the sales taxes paid on your home, or home building materials, you cannot include them as part of your cost basis in your home.

Here are some expenses, which may be included in your house payment that cannot be deducted:
- Fire or homeowners insurance premiums.
- FHA or other mortgage insurance premiums.
- The amount applied to reduce the principal of the mortgage.

You cannot deduct any of the following items:
- Insurance, including fire and comprehensive coverage, and title and mortgage insurance.
- Wages you pay for domestic help.
- Depreciation.
- The cost of utilities, such as gas, electricity, or water.
- More settlement costs.
- Forfeited deposits, down payments, or earnest money.

Note that you can deduct some of these items if you operate a home business. For example, you are allowed to use depreciation on your personal residence if you have a home office.