Real Estate Market

You Could Use A Break!
Homeowners Get More Tax Breaks Than Ever Before

Homeownership is not just about having a comfortable, secure place to live. Done right, owning a home can be one of the best investments you'll ever make. Even better, your home can provide a variety of lucrative tax breaks when you buy, sell and then file your annual tax returns.

Over the last two years, Congress has passed legislation that -- in many new ways -- increased the tax breaks for homeowners. If you already own a home, you’ll want to take advantage of all the tax breaks you qualify for. Not a homeowner yet -- or know someone who wants to purchase their first home? Those who buy a home in 2009 can take advantage of more tax breaks than ever before.

In this Special Report, we’ve summarized tax benefits many homeowners are entitled to including the latest ones. You’ll also find a handy list of IRS publications that discuss home-related tax issues in detail.

Before filing, please be sure to talk with a knowledgeable tax professional about your situation. Although the information presented in this newsletter was accurate at press time, tax rules do change.

Here are some helpful IRS publications for more information about home-related tax breaks. You can find them at your local library, post office or online at www.IRS.gov/publications. You can also request copies by calling (800) 829-3676.

• Pub. 521 Moving Expenses
• Pub. 523 Selling Your Home
• Pub. 527 Residential Rental Property
• Pub. 530 Tax Information for First-Time Homeowners
• Pub. 537 Installment Sales
• Pub. 547 Casualties, Disasters, and Thefts
• Pub. 551 Basis of Assets
• Pub. 552 Recordkeeping for Individuals
• Pub. 553 Highlights of Tax Changes
• Pub. 587 Business Use of Your Home
• Pub. 936 Home Mortgage Interest Deduction
• Pub. 946 How to Depreciate Property

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Interest payments on a residential mortgage--assuming the mortgage isn't larger than the purchase price of the home--are fully deductible in most circumstances. That's a key reason why homeownership is a superb tax shelter. Mortgage interest on a second home is also deductible as of this writing.

Many homeowners can itemize a variety of tax deductions because the deductible mortgage interest and property taxes they pay every year help them exceed the standard deduction. Interest payments on an original mortgage are fully deductible for most homeowners, assuming the mortgage isn’t larger than the home’s purchase price.

Mortgage interest on a second home is also usually deductible either as an itemized deduction (for a vacation home) or as an expense (for an investment/rental property). If you own a third home for personal use, however, the mortgage interest is not deductible.

Interest on home-equity loans is also deductible up to $100,000, no matter how the loan proceeds are used. In addition, if some or all of the proceeds of a home-equity backed loan are used to make home improvements, that amount can be added to the $100,000 limit. (For example, if you take out a $150,000 home-equity loan and use $20,000 to make home improvements, you could deduct interest paid on $120,000 of the loan amount. These limits apply so long as all debt secured by the home does not exceed its fair market value.)

Once your adjusted gross income reaches a certain level, the value of your itemized deductions will start to be phased out. See IRS Form 1040, Schedule A Itemized Deductions, or go online to www.IRS.gov/publications/p17/ch29.html.

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