The Tax Guide for New Homeowners

First comes love, then comes marriage…

Getting married is the start of a wonderful adventure! Though none of us take the same path on our journey as a couple, there is one experience that we all share at some point: filing taxes! And if homeownership is coming next for you and your spouse, then you’ve come to the right place for a primer on how owning a home will impact your taxes.

By the way, are children coming too? We have a tax guide for that too!

Home is where the heart is (and the tax deductions too)

Things have changed a bit since the days when couples lived with their folks until they got married and moved out into their first house together. Nowadays, it doesn’t always go down quite like that. However you get there, owning a home remains a huge milestone in our lives, one that comes with great joy, great frustration (usually plumbing related), and great tax impact.

For most homeowners, one of the great joys is being able to take their mortgage interest and property tax as an itemized deduction.

*A quick aside: all taxpayers are entitled to subtract a set amount from their taxable income. This amount is called the “standard deduction.” If you have more than that predetermined amount in itemized deductions (medical expenses, taxes, interest, charitable contributions, and certain other expenses), then you file Schedule A to claim the greater amount. The Tax Cuts and Jobs Act recently increased the standard deduction by almost double, and as a result more taxpayers will take the standard than had in the past.*

For many taxpayers purchasing a home is the ticket onto the Schedule A and the deductions it allows. The Tax Cuts and Jobs Act (TCJA) made some pretty major changes to Schedule A, many of which impact the tax benefits of home ownership. Beginning in tax year 2018 deductible interest on a home loan is set at a maximum of $750,000 of acquisition debt (aka your mortgage), down from the $1,000,000 it had been in the past. This likely won’t affect your decision to buy your multi-million dollar dream home, but be ready to have your deduction limited. If you pay any points when purchasing your home you can deduct those in the year they are paid. Points paid to refinance, however, must be amortized (deducted in increments) over the life of your loan.

Another big change that came out of the recent tax reform is the $10,000 maximum deduction for State and Local taxes. This one hits you hardest if you live in a high tax state like California or New York because the limit applies to state income tax, sales tax, and property tax (applied to real property as well as personal property like DMV registration fees).

High Finance – Coming Up with that Down Payment

There are no shortage of ways aspiring homeowners can borrow money to pay for their dream home; heck, you can even get a mortgage through an app on your phone now! The financing is the easy part; coming up with a sufficient down payment can sometimes be a struggle. Many taxpayers will use funds from retirement accounts toward the purchase of a home. There are potential tax consequences to this, so let’s take a look at the two main types of retirement accounts used and the tax impact of each.

Contributing to retirement accounts can deliver some great tax savings, but withdrawing those funds before it’s time to retire can lead to some pretty hefty penalties. The IRS slaps a 10% early withdrawal penalty on top of any income taxes due on money you pull out of a 401K or an IRA (Individual Retirement Account). If you’re hoping to pillage your retirement funds to purchase a home you may be able to avoid some of those penalties, but there are some rules to consider before withdrawing.

There are exceptions to the penalty for early withdrawals from an IRA, one of which is for the purchase of a home. The “first time homebuyer” exception allows for a $10,000 penalty-free withdrawal for the purchase of a primary residence provided you (or your spouse) haven’t owned a home in the last two years. Though the withdrawal will not be subject to penalties, you may still be on the hook for income taxes based on the type of IRA you have (Traditional or Roth). If you and your spouse both have IRA accounts you may be able to sneak $20,000 out under this exception, so long as all the other requirements are met.

What if you’re eyeing your 401K rather than your IRA? The rules are different here, so proceed with caution. 401Ks allow you to borrow from your account without paying penalties OR taxes (there are of course some rules about repayment, but that’s another topic) and so there is no exception from early withdrawal penalties for the purchase of a home. If you take a withdrawal rather than a loan from this kind of account you may have a nasty surprise come tax time.

If you’re unsure about this type of withdrawal, talk to your tax advisor BEFORE you grab the money, not after! A quick phone call or email can save you money and heartache down the road.


You work hard to make your house a home; let your home return the favor at tax time! From down payments to deductions, owning a home offers many opportunities for tax savings. Let our team of tax advisors help you make the most of your dream home!


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