Life changes
You Bought a Home: What Changes on Your Tax Return
Buying a home brings new forms and new deductions, but not every homeowner ends up itemizing. The closing paperwork is where most of the tax answers are.
Reviewed by LaToya Clark-Thompson, FounderLast updated
What changes on your return
Homeowners can deduct mortgage interest, real estate taxes and, under current law, mortgage insurance premiums, but only if they itemize on Schedule A. Itemizing helps only when your total itemized deductions (including state income tax, charitable gifts and large medical costs) are more than the standard deduction. With the standard deduction as large as it is, many new homeowners with modest loans still come out ahead taking it.
The cap on the state and local tax deduction is higher than it used to be, but it still limits how much property tax and state income tax count together, and it is reduced at higher incomes. Points paid to get a mortgage on your main home are often deductible in the year you buy; points on a refinance are usually spread over the life of the loan.
Forms that show up
- Form 1098 from your lender, showing mortgage interest, points and sometimes property tax and mortgage insurance paid from escrow. If the loan was sold during the year, you may get two.
- Your closing disclosure (settlement statement), which shows points, prorated property tax and other costs paid at closing
- The county property tax bill and receipt, if you pay property tax yourself rather than through escrow
Keep the closing disclosure with your permanent records. Most closing costs are not deductible, but many of them add to the cost basis of the home, which reduces the gain when you sell one day.
A South Carolina step that is not on your return
If the home is your primary residence, apply with your county for the legal residence (owner-occupied) assessment. It lowers the property tax on a home you live in, and it is not automatic. It is filed with the county assessor, not with your income tax return, and state law sets the deadline, tied to the property tax penalty date for the year you first claim it, so apply soon after closing. The South Carolina deductions guide covers the state side of your income tax return.
What to bring to your appointment
- Every Form 1098 for the year, including from a previous lender if the loan was transferred
- The closing disclosure
- Property tax bills and proof of payment for anything not paid through escrow
- Receipts for improvements made after you moved in, kept for basis
- Receipts for any energy equipment installed, so we can check whether it fell within the old credit rules, which have since ended
- If you work from home as a self-employed person, the square footage of the office
See the tax prep checklist for the rest of your documents.
Common mistakes, and when to get help
- Assuming a mortgage means itemizing, then missing that the standard deduction is larger
- Deducting the full property tax shown on the closing statement when part of it was paid by the seller
- Missing points paid at closing because they were not on the 1098
- Throwing away the closing disclosure and improvement receipts that set your basis
- Withdrawing from a retirement account for the down payment without planning for the tax
The first return after a purchase is worth having us prepare, especially if you also married, moved from another state or plan to rent part of the home. We compare itemizing against the standard deduction on your actual numbers. Start with tax preparation, and if you are moving here from out of state see moving to South Carolina.
Frequently asked questions
Is buying a house a tax write-off?
Not the purchase itself. What may be deductible is the mortgage interest, real estate taxes, mortgage insurance and points, and only if you itemize. Many homeowners find their itemized total is still below the standard deduction, so the home changes nothing on the federal return. We compare both on your numbers. The closing costs mostly add to your basis instead.
Can I deduct points paid when I bought my house?
Often in the year you bought, if the loan was to buy or build your main home, points are normal for your area, and they were computed as a percentage of the loan and shown on the closing statement. Points paid by the seller can count as well. Points on a refinance are usually deducted a bit at a time over the life of the loan.
Is mortgage insurance deductible again?
Under current law, yes. Mortgage insurance premiums are treated as deductible mortgage interest again for those who itemize, after being unavailable for a time. The deduction phases out at higher incomes. Your Form 1098 may show the premiums paid; if your lender does not report them, bring the escrow statement and we will find them.
How do I get the lower South Carolina property tax rate on my home?
Apply to your county for the legal residence assessment on your primary home. It is filed with the county assessor’s office, separately from your income tax return, and you usually need your deed, driver’s license and vehicle registration showing the address. State law sets the deadline, tied to the property tax penalty date for the year you first claim it, and your county assessor handles the application, so apply soon after you close. The county is the authority on approval.
Not the question you had? The full tax FAQ covers more ground, and our client reviews say what the work is actually like.
Related pages
You sold a home
The main home exclusion, Form 1099-S, basis and improvements, and when a sale is taxed.
Learn moreYou moved to South Carolina
Part-year resident returns, what South Carolina taxes, retirement income and what to bring.
Learn moreYou became a landlord
Schedule E, depreciation, repairs versus improvements, losses and the SC property tax change.
Learn moreYou got married
Filing status, withholding, name changes and Marketplace coverage after the wedding.
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