What Documents Will I Need for Taxes if I Bought a House Last Year?
If you bought a house last year, it could impact your taxes. If you itemize your deductions, what documents do you need for taxes if you bought a house?
Sitting down to do your taxes in your new (to you) home, perhaps you already knew that you might need some documentation from your home purchase last year. Or perhaps that was something you discovered while you were well into the process. Whatever the case, if you bought a home last year, the good news is that it can have a positive impact on your taxes. If you itemize your return, there are several new deductions you can take. But to get their full benefit, you’ll need the appropriate documents.
We spoke with top-performing real estate agent Brian Watson in Santa Fe, New Mexico. Watson has been assisting clients with their home sale documents for more than 12 years.
“You have tax deductions that become available to you when you own a home,” he says, pointing out that renters who become buyers have earned the right to apply valuable tax breaks. Watson adds that when you take that step, you also gain “pride of ownership and have an investment — you’re not just paying rent and paying someone else’s mortgage.”
If you’re thinking about taking those deductions on your new home purchase, here’s what you need to know and the documents you’ll need for taxes.
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Itemized vs. standard deductions
Whether or not you’ll need some of these documents depends on whether you file an itemized return or take the standard deduction.
The standard deduction is an automatic subtraction from your income — in other words, after applying the standard deduction, your taxable income will be lower.
The amount you can subtract depends upon your filing status. For many people, itemized deductions won’t be higher than the standard deduction. Therefore, choosing this path saves them time.
Each filing status and its current related deduction is as follows:
- Single or married filing separately: $14,600 (up $750 from last year)
- Head of household: $21,900 (up $1,100 from last year)
- Married filing jointly or qualified widow(er): $29,200 (up $1,500 from last year)
But once you’re eligible for more itemized deductions, such as mortgage interest or a home office, you might be able to deduct more from your taxes if you itemize your deduction. In addition to home-related expenses, you can deduct medical bills, taxes, charitable contributions, and casualty and theft losses.
If you bought a house and you think itemizing your deductions would save you more money, these are the documents you’ll need to prepare your return.
Mortgage documents
The first set of documents you’ll need to file your taxes relate to your mortgage. One of the perks to homeownership is the mortgage interest deduction, among other housing-related deductions, so you’ll want to make sure you take full advantage of it.
IRS Form 1098
Be on the lookout for this form in the mail. Your lender will send it to you at the beginning of the year, or possibly make it available on your lending portal.
This form reports how much mortgage interest you paid during the year. It also includes amounts you paid for prepaid points, mortgage insurance, or private mortgage insurance, “PMI.”
It’s important to note that the itemized deduction for mortgage insurance premiums has expired. You can no longer claim the deduction for 2024. So don’t expect to receive that deduction every year if you’ve been itemizing your taxes and become accustomed to it.
Shane Fisher, CPA and construction controller at Triple Crown Corporation in Harrisburg, Pennsylvania, says that the most beneficial deduction for homebuyers right now is the mortgage interest deduction. “There’s no real limitation on it,” he says, “unless you have a loan with a principal mortgage above $750,000,” or $1 million if you bought your home before December 15, 2017.
For loans with higher balances, you will have to prorate the interest paid as if you only had a mortgage for $750,000.
Mortgage credit certificate
If you got a first-time buyer incentive from your state/local government agency to help offset your taxes, you must file an IRS form with your taxes that you can fill out using your credit certificate. This will allow you to receive credit against your tax liability.
To claim the credit, complete IRS Form 8396. All the information for the form can be found on your mortgage credit certificate, which you should have received when you closed on your house.
Each state sets the rules for its mortgage certificate program, but all apply income restrictions, limits on the home’s price, and require that it remain your primary residence to claim the credit. To find out more about your state’s program, start on the National Council of State Housing Agencies website.
Settlement statement
At the closing, you had to initial and sign a lot of paperwork. One of the first things you probably signed was the settlement statement.
“At the end of closing, you’ll get a closing package along with your settlement statement that shows all the fees you paid,” Watson says.
This statement looks like a ledger, with boxes and numbers up and down each side of the page. Each box has information about the transaction — the purchase price, the amount you paid to taxes and insurance, and the interest you prepaid at the closing. You’ll need this statement if you’re claiming any first-time homebuyer credits.
Your accountant or tax professional will need this statement to confirm the information on other forms when preparing your taxes.
Property tax statement
Even though you probably looked for low property taxes when home shopping, once it’s time to file your taxes, you may be glad if you’re paying more. State and local property taxes are usually tax-deductible but limited to a combined total deduction of $10,000 ($5,000 if married filing separately).
If you escrow your property tax payments with your mortgage company, they’ll be shown on the Form 1098. Any property taxes paid at closing will appear on your settlement statement.
Note that while you don’t have to submit this form to the IRS, you should keep it in case you’re ever audited. In some states, the real estate taxes payment period doesn’t align with the fiscal year.
Fischer says that in Pennsylvania, for example, school and township taxes are paid in January. But since “the deduction is based off what you paid in that year,” he says, taxes paid in January can’t be deducted until next year.
