Deductions and Credits for Homeowners and New Home Buyers
Home ownership can provide a number of tax benefits. For example, you may generally claim a tax deduction for mortgage interest for your main home, along with eligible mortgage insurance premiums, up to the current IRS limit. However, you may only claim these benefits if you itemize deductions, rather than taking the standard deduction for your filing status. The home mortgage interest deduction may be particularly valuable for new homeowners, since payments during the early years of a mortgage consist primarily of interest charges.
In addition to home mortgage interest and mortgage insurance premiums, homeowners may generally deduct state and local property taxes. However, property tax deductions may be subject to the general $10,000 deduction limit for state and local taxes. Also, in order to deduct property taxes, you must itemize deductions on your return, rather than taking the standard deduction.
Non-deductible home ownership expenses include utilities, repairs, insurance (other than mortgage insurance), most closing costs, depreciation, homeowners’ association fees, and payments on the principal of a mortgage loan.
If you receive a Mortgage Credit Certificate (MCC) from your state or local government, you may also qualify for the Mortgage Interest Credit. This credit can reduce your tax on a dollar-for-dollar basis, and you do not need to itemize deductions in order to claim it.