In the excitement of purchasing a home for the first time, homebuyers should not forget one of the biggest benefits of homeownership -- home tax deductions and credits. Every year after you buy your home -- and the year after you sell it, too -- you can look forward to legitimately keeping some of your tax dollars from Uncle Sam come tax season.

While you may have to wade through more IRS instructions, schedules and worksheets to itemize and attach to your 1040, you could end up pleased at what homeownership can save you on your taxes compared to taking the standard tax deductions. In addition, tax credits give you an even better deal because they reduce your taxes dollar for dollar.

Before you sit down to do your taxes or hand over your records to your tax preparer, review the following possible deductions and credits to see which ones apply to you.

Home tax deductions
1. Mortgage interest.
You can deduct all of the mortgage interest each year for your main or secondary home unless your mortgage balance is more than $1 million ($500,000 if married and filing separately). You can deduct interest for a first or second mortgage, home equity loan, or a home improvement loan as long as you used the money to buy, build, or improve your home. Deducting this interest can mean a substantial reduction in your tax bill, especially in the early years when most of each mortgage payment goes to pay the interest rather than the principal on the loan. However, if you have a payment option adjustable rate mortgage (ARM) or a graduated payment mortgage, you may be making smaller mortgage payments initially, creating negative amortization. With these mortgages, you typically end up paying the highest amounts of interest later in the life of the loan.

2. Real estate (property) taxes. Your state and/or local government typically assesses the value of each property in your community and charges you a tax each year. You may make escrow payments with your mortgage to cover these taxes, which your lender then pays on your behalf. You can deduct the amount of the taxes paid. In the year you bought your home, your property tax payment starts from the date you closed on the house. You cannot deduct delinquent taxes you agreed to pay for the seller; however, you can add that amount to the cost basis for your home when you sell it to reduce what you could owe the IRS from the sale.

3. Mortgage insurance. If you obtained a mortgage with less than a 20% down payment, you must pay monthly mortgage insurance premiums. This insurance minimizes the lender's risk should you default on the mortgage and the market value of the home drops. Premiums for qualified mortgage insurance contracts like those provided by the Veterans Administration (VA), Federal Housing Authority (FHA), and Rural Housing Authority are deductible. If your adjusted gross income is more than $100,000, or $50,000 if you are married and file separately, your mortgage insurance premium deductions could be eliminated.

For federal income tax filing, your lender issues you a 1098 form by the end of January each year stating how much mortgage interest, property taxes, and mortgage insurance, if applicable, you paid the previous year.

4. Points. You can deduct points charged by the lender to obtain the mortgage whether you or the seller paid them. Also known as loan origination fees, discount points, loan discount or maximum loan charges, each point equals 1% of the principal amount borrowed. If you do not meet a list of specific criteria, you may not be able to deduct points all at once for the year in which you bought your home, but instead may have to spread out the deductions over the term of the mortgage. IRS Publication 936 explains the rules for deducting points and how much you can deduct in each tax year.

5. Home office. If you work from home or operate/store inventory for your small business in your home, you may be entitled to a number of deductions that can offset your taxes. The part of your home you claim as your office must be used regularly and exclusively for your business or work. Refer to IRS Publication 587 for specifics.

Home tax credits
6. Mortgage interest credit.
Low-income homebuyers may qualify for and obtain a Mortgage Credit Certificate (MCC) from their state or local government at the time they apply for a mortgage. If you received an MCC, the certificate shows your certified indebtedness amount and the certificate credit rate you will use to figure how much credit you receive toward your mortgage interest payments when filing your tax return. Use IRS form 8396 to figure your credit.

7. Residential energy efficient property credit. Certain energy efficient systems qualify for a 30% tax credit through 2016 including solar electric, solar water heating, and small wind energy and geothermal heat pumps.

Now that you're a homeowner, keep careful records. Put settlement papers for your first mortgage and any additional mortgages in a safe but accessible place for future reference. Keep receipts and a running list of all home improvements. When you're ready to sell, the cost of home improvements and even repairs done to make the home marketable as well as other costs associated with advertising the sale can affect your home's cost basis, possibly reducing any income tax you might otherwise owe.

Iris Price is a single baby boomer whose antidote to a lack of retirement funds was to launch a long-delayed career as a writer. While others her age concoct bucket lists and travel the world, she bought a new-construction home and obsessively creates lists of must-have home improvements and personal realization goals. She specializes in writing about home services and self-motivation.

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This article originally appeared at Improvement Center.