Mortgage Costs

• If you took out a mortgage to pay for your home, you have monthly house payments that include mortgage interest payments and mortgage insurance premiums. Both these payments are tax-deductible unless you earn more than $100,000 in adjusted gross income per year, in which case the IRS will greatly reduce or eliminate the deduction. Prepaid mortgage interest also qualifies for this deduction as long as you claim only the interest that would have applied to a specific tax year.
  
  

Real Estate Taxes

• Real estate taxes paid when you settle the deal for a house are tax-deductible. List these paid taxes on line 6 of Form 1040 and itemize your deductions to qualify for the deduction. Real estate taxes paid throughout the year are also tax-deductible. You cannot claim the taxes due before you officially owned the home, and if you agree to pay the seller's delinquent real estate taxes you cannot claim those taxes either.
  
  

First-Time Homebuyer Tax Credit

• From April 2008 to April 2010, the IRS offered up to $8,000 of tax reduction to first-time homebuyers through the First-Time Homebuyer Tax Credit. The maximum credit amount was 10 percent of the home's value. As of 2011, this tax credit is still available to members of the military who entered into a housing contract before April 30, 2011 and formally purchased the home before June 30, 2011. Eligible military members include members of the uniformed services and the Foreign Service as well as members of the intelligence community.
  
  

Nondeductible Costs

• Purchasing a home has costs beyond mortgage interest, mortgage insurance premiums and real estate taxes, but you cannot claim them on your tax return. For example, you cannot claim fire insurance premiums, the wages paid to movers or domestic help, utility costs, legal settlement costs, forfeited down payments or any depreciation in the home's value as a result of the purchase.