How Does Buying a Home Affect Taxes?

Buying a home may allow you to itemize deductions for the first time, since you can deduct mortgage interest and property taxes. Points paid to lower your mortgage rate may also be deductible in the year of purchase. Many closing costs are not immediately deductible but add to your home's "basis," reducing gain when you sell. A first-time homebuyer can withdraw up to $10,000 from an IRA penalty-free. Energy-efficient improvements may qualify for the Energy Efficient Home Improvement Credit.