Having finished my taxes I was thinking about just how nice it is to own a home. If I did not own one I would have owed the government money, as it is I got a refund. So what exactly are my favorite tax deductions for home ownership? Glad you asked:

1. Mortgage Interest

You can deduct all your interest payments for your home (up to a certain amount which I have not reached). This is the biggest deduction and the one that makes the biggest dent in my taxable income.

2. Property Taxes aka real estate taxes

Property taxes are fully deductible from your income. You can’t deduct escrow money held for property taxes until the money is actually used to pay your property taxes. A city or state property tax refund reduces your federal deduction by the same amount.

3. No Capital Gains

Ok so this isn’t really a deduction, but its even better. As most of you know by now I love capital gains like I like a swift kick to the face. Thanks to the Taxpayer Relief Act of 1997, buying a home can be a tax shelter. Married taxpayers who file jointly now get to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the last five years. Single people get to keep up to $250,000 tax free. Since I won’t be making $250,000 profit on any home sales anytime soon, I think I can forget about that cap for the time being.

4. Points

Your mortgage lender will charge you a variety of fees, one of which is called “points.” A point is calculated at 1% of the loan principal. At least one point is fairly common and it adds up. One point on a 200k loan is 4 grand. You can fully deduct points associated with a home purchase mortgage. You cannot deduct a mortgage broker’s commission. Refinanced mortgage points are also deductible, provided they are amortized over the life of the loan. Homeowners who refinance can immediately write off the balance of the old points and begin to amortize the new.

5. Home Improvement Loan Interest

If you take out a loan to make substantial home improvements, you can deduct the interest on this loan. There isn’t a dollar limit on this deduction you have to actually be adding something to your house. A good example would be finishing the basement - not just repairing broken things.

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