Uncle Sam Wants to Give You A Tax Break...
The only catch is that he wants you to buy a house first!

You may feel that you can't buy a home. The reasons you have might be large, but typically 'affordability' is at the top of the list. Actually the ability to afford a home has never been more within your reach!

Mortgage programs are more flexible today than ever, home prices are low, and sellers are very motivated in most areas. On top of that, the tax laws favor home ownership like no other tax shelter. Refer to IRS publication 936, Home Mortgage Interest Deduction for the official statement.

This discussion is for educational purposes only. It should not be interpreted as tax, legal or estate planning advice. Consult with your specific tax, legal or estate planning professional for guidance relating to your specific circumstances.

Many people currently renting compare their rent payment with a projected home mortgage payment and feel that they can't afford the monthly payment... without realizing that the projected tax savings may significantly reduce the effective mortgage payment.

It is very important to point out that real estate deductions, taxes, and mortgage interest deductions, are the only ones left by Congress fully intact. For starters, the costs associated with loan origination, discounts and fees are tax deductible! For purchases, in the year you buy; for refinances, amortized over the life of the loan.

Here's a comparison of tax deductions of renters and home owners to see the dramatic difference the American Dream of home ownership can make to you!

William and Mary have a combined income of $95,000. They are purchasing a home for $250,000, making a 10% down payment, and borrowing $225,000 on a 30-year mortgage at 6.5%. Their monthly principal and interest payments amount to $1,422. The table to the right shows the value of the tax deductions and the amount of cash they will save.
 

Assuming William and Mary were paying $1,000 per month in rent, the federal tax breaks alone would enable them to pay $1,434 for a mortgage without any other change to their budget! Additional tax savings from state income taxes make home ownership even more advantageous.

Home mortgage interest on up to $1 million of acquisition debt secured by your principal home and /or second residence is fully deductible. You may also deduct mortgage interest on home equity debt (up to $100,000). Points paid to secure a loan for the purchase or improvement of a principal residence are usually fully deductible in the year you pay them. Points paid to refinance on existing mortgage must be deducted over the life of the loan. Real estate taxes and state and local property taxes are deductible.

When you sell your principal residence, you can exclude from income up to $250,000 in gains ($500,000 if married and filing jointly). To qualify, you must have owned and used your home as a principal residence for at least two years during the five-year period ending on the date of sale. The full tax break is available only once every two years.

If you are currently in escrow, you should pay your property taxes through escrow. When it comes time to close, the title & escrow company will need to verify that the property taxes have been paid. If payment can not be verified, the title company will be required to hold a portion of the seller's proceeds pending verification.

IRS Publication 936, Home Mortgage Interest Deduction, has details on deductions related to refinancing. It is available at the IRS Web site or by calling them at (800) 829-3676.