When you buy a house, you can receive a myriad of tax deductions. These include mortgage interest and points you paid to receive a lower interest rate. You can also deduct the property tax you paid during the year as well as any mortgage insurance premiums the lender required if you didn’t make a large down payment. First-time homebuyers may be able to receive credits that can increase your tax refund.
IRS Form 1098 reports the amount of mortgage interest you paid during the year. It includes regular mortgage interest as well as any points you paid, refunds you received from paying too much interest and mortgage insurance premiums you paid. Your lender will usually mail you and the Internal Revenue Service a copy of Form 1098 in January. You can contact the company to request one if you don't receive it.
Property Tax Statement
You can deduct the property tax you paid during the year and any prorated property taxes you paid at closing. Review your final bill of the year or the year-end statement you may receive in some cities, to report the correct amount. The IRS does not require you to include this documentation with your return, but keep it on hand in case of an audit.
The settlement statement provides the figures you will need to claim the first-time homebuyer's tax credit, such as the purchase price and date. If any of the interest or tax payments you want to deduct are not included on your Form 1098 or property tax statement, such as additional points you paid or property tax paid into a lender's escrow account, you must include a copy of the settlement statement with your tax return to prove the additional amounts.
Mortgage Credit Certificate
Some state and local government agencies offer incentives for first-time home ownership by providing mortgage credit certificates. These provide a dollar-for-dollar offset of federal income taxes, although you are required to reduce the amount of mortgage interest you deduct by a percentage of the credit. To claim the mortgage interest credit, you must complete IRS Form 8396, but you do not have to send the certificate with your tax return.
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