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The Tax Benefits Of Home Ownership

Right At Home Daily: Take It And Run: Getting Organized
By Jim Sulski for Right at Home Daily

Think the government is greedy? Think again, especially when it comes to owning a home. To own a home is one of the few things you can use and earn a profit from, in addition to receiving substantial tax benefits. These benefits kick in when you buy a home, carry a home mortgage, pay your annual real estate property taxes, and sell your home.

Here's how it works: When you purchase a home, the interest you pay on your mortgage can be deducted from your federal income tax for the year and in most cases will also help lower your state income taxes. This deduction could lower your housing costs as much as one-third.

What else is deductible from your federal income tax form?

If you itemize your expenses on your tax form, when you purchase a home you often can deduct loan discount points and origination fees in the year of purchase. During the life of the loan, you can deduct the interest you pay on the mortgage. For a new homeowner, this can be a sizable benefit because the monthly house payment is mostly interest in the early years.

If you take out a home equity loan, or a second mortgage for a vacation home, you may deduct that interest on loans of up to $100,000.

Even better than deductions, when you sell your home you can take the first $250,000 in profits (up to $500,000 if you're married) tax-free as long as you and your spouse have lived in the house (as your primary residence) for two of the past five years.


1. Mortgage interest may be deducted on home loans of up to $1 million. Deductions on home equity loans are limited to loans of up to $100,000. While this sounds good, your ability to deduct declines once your annual family income tops $160,000.

2. Don't pay more just to get the write-offs. Shop for the lowest interest rate.

3. If your profit exceeds the $250,000/$500,000 levels, you may owe capital gains tax. If you've owned the home for at least 12 months, you'll pay 20 percent if you're in the 28 percent tax bracket or above, or 10 percent if you're in a lower bracket.

4. Don't pay more than you have to: Your capital gains can be decreased by what you paid for capital improvements in the home (such as a new roof or siding, a room addition, a new water heater, new electrical or other upgrades), the cost of purchase and the cost of sale.

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