IRS Mortgage Tax Laws

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Homeownership is one of the final tax shelters available because you save money when you buy a home, while you own it and even when you sell it.  The Internal Revenue Service provides a number of favorable treatments for owners.
 
 Write off your interest
 
 The largest deduction available for homeowners is the mortgage interest deduction.  According to IRS guidelines, tax filers can deduct the interest paid on a home to a maximum of $1 million in mortgage debts secured by a first and second home -- plus the interest paid on a maximum $100,000 in home equity loans. (For married filers filing separate, those limits are halved.)
 
 So if you make a $1,200 monthly mortgage payment, of which roughly 80% goes toward interest, you can deduct, depending on your tax bracket, up to $11,500 a year. Not bad, especially as you're also building equity in your home.
 
 Property taxes are also deductible as are loan origination fees, points and other house buying expenses such as legal fees and administrative costs.  These differ slightly between home purchase and refinancing - consult your tax professional.
 
 Lesser-known deductions
 
 Beyond writing off your interest, other, less familiar tax deductions are available to help the homeowner save money.
 
 If you have to make improvements at your home because of a medical condition, such as installing central air conditioning or adding ramps to make your home handicapped accessible, those expenses are deductible.
 
 So are moving costs. If you move more than 50 miles away for a new job, you can deduct the cost of moving yourself, your household goods and your vehicles to your new location.
 
 Working at home can also quality you for a tax break, although guidelines are strict. You must use the area designated as an office exclusively for business. That means you can't work at the dining room table or use the family room that other members utilize. Individuals who work at home can also deduct a portion of home expenses, such as insurance, the cost of a security system, and utilities.
 
 Home-sale savings
 
 Even making money off selling your home can reduce your taxes. Quite a feat when you consider that if a stock appreciates and you sell it, you must pay capital gains taxes. Not so with a house.
 
 Current U. S. law allows homeowners to exclude $250,000 from capital gains on the sale of a home and $500,000 if you're married and filing jointly. To qualify, you must have owned the home and lived in it as your primary residence for at least two of the five years prior to the sale.
 
 If you're unsure of your ability to take advantage of the savings available to you, you may want to consult a tax professional.
 
 The laws change almost every year.  For that reason - we'll refer you to these sites for the official IRS answer.

IRS Publications
Publication 523 Selling Your Home
Publication 527 Residential Rental Property
(Including Rental of Vacation Homes)
Publication 530 Tax Information for First-Time Homeowners
Including - 'What you can and cannot deduct' and 'Home Mortgage Interest Deductions'
Publication 550 - Chapter 4 - Sales and Trades of Investment Property
Publication 936 Home Mortgage Interest Deduction
All Federal Tax Publications