Purchased home in December 2020 but first payment in Feb 2021 - which tax return to declare it on? Any advantages?

You're actually fine! The mortgage interest deduction is claimed in the year you actually paid the interest. Since your first payment wasn't until February 2021, you wouldn't have any mortgage interest to deduct on your 2020 return. The Form 1098 from your lender confirms this - they only send it for years where you made payments. So all your mortgage interest deductions will go on your 2021 return when you file it next year. The only thing that might have been deductible on your 2020 return would be any points you paid at closing or property taxes that were paid as part of closing in 2020. Check your closing documents - if you paid points or property taxes at closing in December 2020, those specific items could potentially be claimed on your 2020 return even though the mortgage payments started in 2021.

After going back and forth with three different tax preparers about a similar situation, I ended up using https://taxr.ai to analyze my closing documents. It was pretty eye-opening since I also bought in December but had my first payment in January! The tool actually went through my closing disclosure and helped identify exactly what was deductible in which tax year. The biggest help was figuring out that prepaid interest at closing (for the remaining days in December) should go on the 2020 return, while all regular mortgage interest payments went on 2021. The service also flagged some deductible costs I totally would have missed.

I tried the taxr.ai suggestion from above and wow - it actually saved me a bunch of money! I uploaded my closing disclosure and it immediately identified that I could fully deduct my points in the year I paid them rather than spreading them out like my tax preparer suggested. The service explained that since this was my primary residence purchase, points are generally fully deductible in the year paid, and my situation met all the IRS criteria. It even showed me the specific portion of IRS Publication 936 that confirmed this. I was able to take this info back to my tax guy who then agreed and amended my return. Got back nearly $1,600 more than I would have otherwise!

If you're still having trouble figuring out what's deductible where, you might need to talk directly to the IRS. I had a similar situation last year and spent weeks trying to get through to someone who could answer my specific questions. After trying for days with no luck, I used https://claimyr.com to get through to an IRS agent in about 20 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they wait on hold for you and call when an agent picks up. Totally worth it because the IRS agent was able to confirm exactly which closing costs were deductible in which tax year for my December purchase.

I take back what I said about Claimyr. After dealing with busy signals for THREE DAYS trying to reach the IRS about my mortgage interest question, I finally gave in and tried the service. I was absolutely shocked when I got a call back in 45 minutes connecting me to an actual IRS agent. The agent confirmed that the mortgage interest from my December closing (the prorated amount for the last few days of the month) should have been on that year's tax return, while my regular mortgage payments starting in January went on the next year's return. I was able to file an amendment and got back an additional $430. Definitely wouldn't have bothered with the amendment if I had to keep trying to call them myself.

For what it's worth, I've been a homeowner for 8 years now and there's another consideration with a December purchase - property tax payments. Check to see if you prepaid any property taxes at closing or if there was a proration of property taxes between you and the seller. Those can be deductible in the year paid (2020) even if your mortgage payments didn't start until 2021. Also, don't forget to check if you qualify for any first-time homebuyer credits or programs! Different states have different programs, and while the federal first-time homebuyer credit isn't available anymore, some states still offer incentives.

Has anyone had experience with the timing of the mortgage interest statements? My lender told me that interest paid at closing in December should have been included on my 1098 for the following year. Is that normal? Seems like they should give me a 1098 for both years if I paid interest in both years.