The Guide for Handling Taxes as New Home Owners

The COVID-19 pandemic saw an increase in first-time home buyers, as millions of people decided to seize the opportunity to become homeowners. If you’ve just bought your first home, congratulations! It’s a great benefit, but there are now a lot of other things you have to consider.

Namely, taxes. How do taxes work for new home owners? Read our handy guide that walks you through everything you need to know!

Tax Changes for New Home Owners

Are taxes different for a new home owner? Yes, but much of it in a good way!

There are quite a few benefits and deductions for new homeowners. Depending on your situation and mortgage, you’ll probably be able to deduct quite a bit when you file taxes.

Unfortunately, you also have property taxes to consider as well. In San Diego county, the property taxes are 1% of your property’s net value. Thankfully, you may qualify for things like a Homeowner’s Exemption, Disabled Veteran status, or other benefits that can lower your property taxes. 

Deductions to Check For

There are quite a few deductions that you qualify for now that you own a home! While the standard deduction is nice, these extra write-offs are going to come in very handy when you file this year.

One of the best breaks on taxes for a home owner is your ability to deduct mortgage interest. After 2017, you can deduct up to $750,000 in mortgage interest that you’ve paid.

Additionally, those local property taxes can be deducted from your federal taxes! Your total amount of state and local taxes you can deduct each year is $10,000. That means that if you live in a high-tax area, you’re probably not going to be able to deduct all of your local taxes.

If you made a smaller down payment, you might also be able to deduct your mortgage premiums on your federal tax return. The deduction for these premiums on Mortgage Insurance was extended through 2021, although it may not extend into the following years.

Other Tips to Save on Taxes

Besides the deductions, if you added any energy-saving improvements or equipment to your home, you might qualify for a tax credit! It’s better to get a tax credit than a tax deduction, as it reduces the entire tax bill.

Also, you can often shield your profits from tax when you sell your home if certain conditions are met. There are certain home ownership tax requirements that will let you keep profits up to $250,000 (or $500,000 if you’re filing jointly) tax-free.

With all these deductions and benefits, you might find yourself reeling from all the things to keep track of. If you’re in that boat, it might be wise to consider hiring a professional tax preparation service. They can help you file your taxes and maximize your benefits and deductions, saving you quite a bit in the long run!

Learn More About Tax Preparation!

While the taxes for new home owners can get confusing, there are a lot of tax benefits for new home owners! Make sure you take advantage of these benefits and deductions, and you’ll walk away with thousands of dollars in your pocket every year.

But if you’re still unsure about filing, or you want someone to walk you through the process, we’d be happy to help! Feel free to contact us about filing your taxes or we’ll do our best to help you get everything squared away for the coming year.