Standard Deduction or Itemizing: Which Is Right?
From Tax Guide.
Tax Guide · Arab, Alabama
Buying a House: Tax Checklist for New Homeowners
Bought a house? See which papers matter at tax time, including Form 1098, property tax records, points and closing documents, and how itemizing works.
The short answer
What taxes should I know about after buying a house?
After buying a house, the tax items to know about are mortgage interest, property taxes, points paid at closing, and the records that show what you paid.
Buying a home does not automatically lower your taxes. Some homeowner costs can be deducted, but only if you itemize deductions instead of taking the standard deduction, and for many households the standard deduction is still larger. Our guide on the standard deduction versus itemizing explains how to compare them.
What a purchase does do is create paperwork you should not lose. Some of it matters this year, and some of it matters for the day you sell. See taxes when you sell your home for why.
The rules and limits change from year to year, so we confirm the current ones for each return.
Documents
What tax documents do I get when I buy a home?
The main documents are the closing statement from your purchase, Form 1098 from your lender, and your property tax bill.
Keep everything from the closing table. The closing statement (sometimes called the settlement or closing disclosure) shows what you paid, which costs were points or fees, and how property taxes were split with the seller. Some of those amounts affect this year's return, and others affect your cost basis in the house.
Your lender sends Form 1098 after the year ends. It shows the mortgage interest you paid and may show property taxes paid from an escrow account. The amounts on the form do not always match what you actually paid, especially in the year you buy, so we compare it to your closing papers.
Bring these along with the rest of your papers. Our general list of tax documents to bring to your preparer covers the rest.
- Closing statement or closing disclosure.
- Form 1098 (mortgage interest statement).
- County property tax bill or receipt.
- Records of points, loan fees and prepaid interest.
- Escrow account statements, if your payment includes taxes and insurance.
Deductions
Can I deduct mortgage interest and property taxes?
You may be able to deduct mortgage interest and property taxes if you itemize, but limits apply, and many homeowners still take the standard deduction.
Mortgage interest on your main home and, in some cases, a second home, may be deductible. Certain limits on how much debt counts and on the total of state and local taxes you can deduct are set by federal law, and they have changed over the years, so we do not quote numbers here.
In Alabama, property taxes are paid to your county. If the lender pays them from an escrow account, the amount that counts is what was actually paid to the county during the year, not what you put into escrow.
Points paid to lower your interest rate may be deductible over time or all at once, depending on the loan. Interest on a home equity loan has its own rules, which depend on how the money was used. Alabama has its own return and its own rules, and we check how they apply.
Other items
What other homeowner tax items should I keep track of?
Beyond the yearly deductions, keep records of what the home cost you and what you spend improving it, because they matter when you sell.
The price you paid, plus certain closing costs and later improvements, forms your basis in the home. A higher, well-documented basis can reduce the taxable gain when you sell. Routine repairs are generally not added to basis, while lasting improvements often are, so it helps to know the difference.
Some energy-related home improvements have been eligible for federal credits, but those rules change and have limits, so ask before you assume. If you use part of your home for business, see our guide on the home office deduction. If you rent out part or all of the house, see rental property income and taxes.
Some counties offer property tax exemptions, such as a homestead exemption. Those are handled by the county tax office, so ask them what applies and what you need to file.
Records
How long should I keep my home purchase records?
Keep your home purchase and improvement records for as long as you own the home and for a while after you sell it.
The usual rule of keeping returns for at least three years is not enough for property. Basis records matter until you sell and report the sale, so they need to be kept longer. Store the closing statement, the deed information and receipts for improvements together, ideally with a backup copy. Our article on how long to keep tax records gives the wider picture.
Do not send documents or Social Security numbers through our website. Bring your papers to the office or call us.
How we can help
How Melton Tax Services can help
Our office prepares income tax returns for individuals and families, including returns for the year you buy a home.
Bring your closing papers, Form 1098 and property tax bill, and we will go over what applies to your return. See our income tax preparation service or contact our office.
You can also call 256-586-4635. We serve Arab and the surrounding area.
Answers
Questions about new homeowner tax checklist
Do I get a tax break just for buying a house?
Not automatically. Some costs of owning a home may be deductible if you itemize, but many households do better with the standard deduction. We compare both for your return.
Why does my Form 1098 not match what I paid?
In the year you buy, some interest or taxes may appear on your closing statement rather than on Form 1098. We compare the two to see what belongs on your return.
Are closing costs deductible?
Some are, such as certain points and prepaid interest, while many others are added to your basis instead. Your closing statement tells us which is which.
Can I deduct property taxes I paid at closing?
Property taxes you owe as the buyer may be deductible if you itemize, while taxes that belong to the seller are not. The closing statement shows how they were divided.
Does buying a house change my Alabama return?
It can. Alabama has its own rules for deductions, and we check how the federal items carry over to the state return.
What if I bought my house with a spouse or family member?
Who can deduct what depends on who owns the home and who actually pays. Bring the deed and your payment records so we can sort it out.
Read next
Related reading
Taxes When You Sell Your Home
From Tax Guide.
What Documents Do I Need to File Taxes?
From Tax Guide.
How Long to Keep Tax Records
From Tax Guide.
Income Tax Services
A service Melton Tax Services provides.
Melton Tax Services
Questions about your taxes or your business?
Our team in Arab is just a phone call away, and we are glad to talk it through with you.