Buying a Home - Leaving Rent-ville for a Lifetime of Tax Deductions

So you're tired of giving money to a landlord ...
Welcome to home ownership, the closest you may ever get to a "sure thing" investment. Not only does buying a home give you a place to call your own, it's also a great way to reduce your income taxes. The qualified mortgage interest you pay and your real estate taxes are both deductible. That's not to mention that with a little luck and a reasonable maintenance policy, most homes increase in value over time.

Know All Your Deductions
With the purchase of your first home and the new deductions it brings, you will likely be eligible to change from using the standard deduction to itemizing deductions on Schedule A. That means you will need to keep records of other available itemized deductions. Among the more common itemized deductions are:

• Medical and dental expenses

• State and local income taxes

• Personal property taxes (usually on your car)

• Gifts of cash and property to qualified religious and charitable organizations

• Casualty and theft losses

• Employment-related expenses

• Tax preparation fees

• Investment expenses

• Gambling losses to the extent of your winnings

Some of these deductions are subject to limitations, so follow the directions for Schedule A carefully.

Interesting Facts About Interest
Mortgage interest you pay on loans up to a million dollars ($500,000 if you use the married filing separately status) is deductible, provided you used the money to buy, build, or improve your home.

Mortgage interest you pay on loans secured by your home and used for a purpose other than to buy, build, or improve your home is deductible for loans up to $100,000 ($50,000 if you use the married filing separately status) or to the extent of your home equity, whichever is less. As you gain equity in your home, use these lines of credit wisely: If you fail to make the payments, you put your home at risk.

Lastly, let's not forget points, also called loan origination fees. One point equals one percent of your loan. Points you pay (and even points the seller pays) when you purchase your home are generally deductible in full the year you pay them. Alternatively, you may amortize the points over the term of your mortgage. The wise choice is usually the immediate deduction, but not always. Your H&R Block tax professional can help you decide which treatment is better for you.

Moving on Up
When you decide to move on up to bigger and better things, Uncle Sam allows you to exclude from taxable income gains on the sale of your home up to $250,000 ($500,000 if you file jointly with your spouse). You generally may claim this exclusion only once in any two-year period. A loss on the sale of your home is, however, not deductible.