Tax Season: What New Homeowners Should Know

Feb. 25, 2013 — -- Being a homeowner for the first time comes with all kinds of responsibilities that normally don't come with renting.

There's yard work, home repairs, picking paint colors, insurance and of course, figuring out your tax liability.

American home ownership has long been subsidized by tax savings, and if your real estate agent didn't tell you about them, an accountant or tax preparer will.

"The path to owning a home has a great deal of tax benefits and a discussion with your tax professional will help to clarify the details," says William Slade, a certified financial planner in California and enrolled agent licensed by the IRS.

For many, the deductions available for being a homeowner will allow them to offset their personal exemptions on their paychecks, allowing them to receive more money in their paychecks throughout the year, Slade says. That could be more money to pay a mortgage.

[Related Article: Many Consumers Don't Take Advantage of Mortgage Interest Deduction]

The biggest change new homeowners should know when filing their taxes is they'll need to itemize deductions in Schedule A, which is more complicated than the standard deduction they may have taken on previous tax returns.

Itemized deductions for new homeowners include mortgage interest, property taxes, points paid on a home loan, mortgage insurance and charitable contributions (such as cleaning out a garage and donating clothes to charity).

Homeowners who haven't itemized deductions before may also be introduced to other Schedule A items such as personal property tax, state tax withholding and charitable contributions that can lead to a bigger overall tax deduction, Slade says.

The savings is based on your tax bracket. If your tax rate is 33 percent, then for each dollar of mortgage interest spent you save 33 cents.

The first is the deduction for mortgage insurance premiums. Lenders often require the insurance if the loan balance is for more than 78 percent of the home's value.

The second reclaimed tax break is a credit of up to $500 for making certain improvements that increase a home's energy efficiency. A credit is money taken off the amount owed to the IRS. The tax credit is typically 10%, up to $500 total, for buying and installing certain products such as a new water heater, central air conditioner, insulation, windows or roof.