The information in this article is up to date for tax year 2025 (returns filed in 2026).
Becoming a homeowner is exciting, but it also comes with a stack of new responsibilities, especially at tax time. Between mortgage statements, property taxes, and closing documents, it’s easy to miss deductions or make mistakes that cost you money. Here are the most common tax errors new homeowners make and how to avoid them.
1. Deducting the Wrong Year’s Property Taxes
Property taxes are deductible in the year you actually paid them, not the year printed on the bill. This confuses many new homeowners because some taxing authorities bill a year behind. For example, you might receive a 2026 bill in 2027 — but you can only deduct it if you paid it in 2027.
The updated tax law allows you to deduct up to $40,000 in combined state and local taxes (SALT), including property taxes, if you itemize. Just make sure the amount you enter reflects what you truly paid during the tax year.
2. Confusing Your Escrow Amount with Your Actual Taxes Paid
If your lender escrows money for property taxes, don’t assume the full escrow balance is deductible. The amount you paid into escrow is often different from what the lender actually paid to the tax authority due to timing differences, shortages, or overages.
Before filing, check Form 1098 from your lender. It shows the exact amount of property taxes you’re allowed to deduct, and that’s the number the IRS expects to see.
3. Overlooking Closing Cost Details
Many new homeowners assume all closing costs are deductible, but only a few items actually impact your taxes. Missing these details can mean leaving money on the table.
Some charges, like mortgage interest paid at closing or property taxes you reimbursed the seller for, may be deductible in the year you buy your home. Others, such as title fees, transfer taxes, and most lender charges, aren’t deductible but should still be saved. They can increase your home’s cost basis, which may reduce capital gains tax when you eventually sell.
The best move is to keep your entire closing packet in one place and review it at tax time. A quick look now can help you avoid one of the most common (and costly) new‑homeowner tax mistakes.
4. Claiming Too Much for the Mortgage Interest Deduction
The mortgage interest deduction is one of the biggest tax perks of homeownership, but the rules changed. If you purchased your home after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt ($375,000 if married filing separately).
You don’t need to remember the old $1 million limit, just use the mortgage interest amount listed on your Form 1098 to avoid over‑claiming.
5. Missing Out on the Home Office Deduction
If you’re self‑employed and use part of your home exclusively for business, you may qualify for the home office deduction. This applies whether you own or rent, and it covers all types of homes.
The simplest method is the simplified option:
- Deduct $5 per square foot,
- Up to 300 square feet,
- For a maximum deduction of $1,500.
Just make sure the space is used only for business — and keep clear records in case the IRS asks for documentation.
6. Not Keeping Track of Home‑Related Expenses
Good record‑keeping is essential for homeowners. Save your:
- Mortgage interest statements
- Property tax receipts
- Closing documents
- Home improvement receipts
You’ll need these not only for annual tax filing but also when you eventually sell your home. Improvements can increase your home’s cost basis, which may reduce the taxable portion of your profit. Most homeowners can exclude up to $250,000 of capital gains ($500,000 for married couples), but anything above that is taxable, so accurate records matter.
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Frequently Asked Questions
What tax mistakes do new homeowners make most often?
Common errors include deducting the wrong year’s property taxes, misreporting mortgage interest, overlooking closing cost details, and failing to track home improvement expenses.
Are any closing costs tax‑deductible for new homeowners?
Only a few closing costs are deductible, such as mortgage interest paid at closing or property taxes you reimbursed the seller for. Most other fees aren’t deductible but should be saved because they may increase your home’s cost basis when you sell.
How do I know which year’s property taxes I can deduct?
You can only deduct property taxes you actually paid during the tax year, even if the bill reflects a prior year. Many new homeowners get tripped up by this timing rule.
Do home improvements qualify for tax deductions?
Most improvements aren’t deductible right away, but keeping records is essential. Some upgrades may qualify for specific tax benefits, and others increase your home’s cost basis, which can reduce capital gains tax when you sell.
Can I deduct my mortgage interest as a new homeowner?
Yes. Mortgage interest is one of the biggest tax benefits of homeownership, but you must use the correct amount from your lender’s Form 1098 to avoid errors.
What documentation should new homeowners keep for tax season?
Keep records of mortgage interest statements, property tax payments, closing documents, and receipts for home improvements. Proper documentation helps you avoid mistakes and claim every deduction you’re eligible for.
Can using tax software help me avoid homeowner tax mistakes?
Yes. Guided platforms like ezTaxReturn help you navigate homeowner‑specific deductions and prevent common filing errors so you don’t leave money on the table.
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
