Mortgage interest is the largest tax deduction for many people. Buying a house can offer other one-time deductions. Use these techniques to determine the appropriate changes to your tax withholding to avoid getting a huge refund at tax time.
First figure out the one-time items that will effect your taxes this year. The most common of these items will be any points you paid on your mortgage. These are usually deductible.
Next figure out the monthly amount of your mortgage interest (always deductible up to $1M), property tax, and PMI insurance you may have to buy due to a small down payment (sometimes deductible depending on amount and time of purchase). Use an amortization calculator to figure out how much of your monthly payment is going to interest for the first year. This number will gradually decrease over time as you pay down your principal balance, so be sure to check it every few years.
Your taxable income will be reduced by combined total of the one-time charges plus the yearly charges come tax time. You can safely increase your claimed exemptions an amount equal to your income deduction. For example, if you have $15,000 in new housing-related deductions, and each exemption is equal to $3,500 in 2008, you can increase your exemptions by 15,000/3500 ~ 4 exemptions to account for your increase in planned deductions. This will prevent your company from withholding too much money from your paycheck throughout the year.
You will have to itemize your deductions to do this. It's not hard, especially with a decent tax program.