Buying a Home? Don’t overlook taxes.

Written By: Maggie Rickels, REALTOR® at MOVE Realty

When considering purchasing a home, most people focus on the down payment, purchase price, mortgage rate, and monthly payment. However, another important factor that can impact affordability is taxes.

Understanding how taxes fit into the home-buying process can help you plan more effectively, prevent unforeseen costs, and make a well-informed financial decision.

As you consider the financial aspects of purchasing a home, keep in mind that taxes play a bigger role than many people realize.

Property Taxes and How They Affect Your Monthly Payment

Property taxes make a major difference in your total cost of homeownership.

For many homeowners, property taxes are included in their monthly mortgage payment through an escrow account. This means your lender collects a portion of your annual tax bill each month and pays it on your behalf when it’s due.

The amount you pay in property taxes depends on:

• The location of the home
  
  
• The assessed value of the property
  
  
• Local tax rates
  
  

Two homes with the same price may still have very different monthly costs due to property taxes.

Your Mortgage Payment is More Than Principal & Interest

A common misconception is that your mortgage payment only includes principal and interest. In reality, most monthly payments are made up of four parts, often referred to as PITI:

• Principal – the portion that pays down your loan
  
  
• Interest – the cost of borrowing
  
  
• Taxes – property taxes collected monthly
  
  
• Insurance – homeowners’ insurance
  
  

Because property taxes add a significant amount to your monthly payment, be sure to consider all monthly costs, not just the purchase price, when determining affordability.

Property Taxes Can Change!

One thing that often catches buyers off guard is that property taxes can change after you purchase a home.

In many cases, the county reassesses the property value after a sale. If the home sells for more than its previously assessed value, the property taxes may increase the following year.

Your payment may rise if property taxes increase after a county reassessment. Planning for this possibility helps prevent unwelcome surprises.

While changes in property taxes can affect your monthly payment, they’re only one part of the picture—your personal tax situation plays a role as well.

Now…Why do your personal taxes matter here as well?

While property taxes directly affect your monthly payment, your personal tax situation also plays an important role in homeownership.

For many buyers, purchasing a home can change how they file their taxes and what deductions they may be eligible for.

Some homeowners may be able to deduct:

• Mortgage interest
  
  
• Property taxes (within federal limits)
  
  

However, these benefits apply only if you itemize deductions instead of taking the standard deduction, so not every homeowner will see an immediate tax benefit. Itemizing means listing out specific expenses—like mortgage interest and property taxes—on your tax return to see if your total deductions are greater than the standard deduction amount set by the IRS. For many people, especially first-time buyers, the standard deduction may be higher than what they could deduct by itemizing. You might consider itemizing if your deductible expenses, including mortgage interest, property taxes, state and local taxes, and charitable donations, add up to more than the standard deduction.

Your income, filing status, and finances determine how homeownership impacts your taxes. Look beyond monthly payments—focus on how buying a home fits your entire financial plan.

Working in a CPA office, I see firsthand how different each person’s tax situation can be—and how important it is to have the right documents and guidance at tax time.

A Note from a CPA

“One of the biggest things I see is that homeowners don’t always keep the documents they’ll need later. Keeping your closing documents, mortgage interest statements, and records of improvements can make a difference when it comes to preparing your tax return and planning ahead.”

— Phillip E. Rickels, CPA

What to Keep for Your Accountant After Buying a Home

After closing on a home, you’ll receive several important documents, such as your settlement statement and mortgage agreement. These documents are important for verifying your purchase and may be needed for tax deductions or future reference. Keeping them organized will make filing your taxes much easier.

Closing Disclosure

Your closing documents outline all of the financial details of your home purchase.

This document may include:

• Mortgage interest adjustments
  
  
• Property tax prorations
  
  
• Loan costs
  
  
• Points paid to lower your interest rate
  
  

Even if you don’t fully understand every line item, it’s important to keep this document safe. Your accountant relies on it to accurately prepare your taxes and identify eligible deductions, so proper storage can impact your financial outcome.

What is a 1098 form?

If you have a mortgage, your lender will send you a 1098 form each year.

This form shows:

• The total mortgage interest you paid
  
  
• Any points paid on your loan
  
  
• Mortgage insurance premiums (in some cases)
  
  

Mortgage interest may be tax-deductible if you itemize your deductions, which is why this form is one of the most important documents for homeowners during tax season.

Property Tax Records

In addition to your 1098, your accountant may also need records of your property tax payments.

If your taxes are escrowed, this information is often included on your 1098. If not, you may need to provide proof of payment directly from the county.

Keeping track of what you paid—and when—helps assure everything is reported accurately.

What to Bring to Your Accountant If You Sold a Home

If you sold a home during the year, there are a few additional documents your accountant will likely need.

Closing Disclosure from the Sale

Just like when you purchased your home, the Closing Disclosure from your sale shows all the financial details of the transaction.

This helps your accountant determine:

• Your final sale price
  
  
• Closing costs
  
  
• Any potential taxable gain
  
  

Records of Major Home Improvements

If you made major improvements to your home while you owned it, those records can be very valuable.

Major improvements can increase your home’s cost basis, possibly lowering the taxable gain when you sell.

Examples include:

• Roof replacement
  
  
• Kitchen or bathroom remodels
  
  
• Room additions
  
  
• Major system upgrades like HVAC
  
  

Keeping receipts and documentation over time is essential because your accountant uses these records to reduce your tax liability. Losing them can mean losing out on valuable tax savings.

The Value of Planning Ahead

While taxes may not be the most exciting part of buying or selling a home, preparing your documents and staying organized can save you time, stress, and money.

Keeping your documents organized and knowing their tax relevance helps avoid missed deductions and eleventh-hour issues, assuring a smoother tax process.

Staying organized throughout the year is a huge help at tax time, as I see in both of my roles.

Final Thoughts

Buying or selling a home is a major financial milestone, and taxes are an important part of that process.

By knowing how property taxes affect your monthly payment and knowing which documents to keep, you can feel more confident not only during the transaction but also long after closing.

If you’re thinking about buying or selling and want guidance on the full financial picture, I’m always happy to be a resource and help you every step of the way.