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The 2006 tax deadline is right around the corner. And, if you just bought a home, you stand to get a little cash back this year -- if you know which deductions to make. In order to get you up to speed on which deductions new homeowners qualify for, the IRS published a homeownership tax deduction guide. Here are nine deductions, Nolo.com summarized, you can start with:
1. Mortgage Interest: If you and your spouse file jointly, you can deduct a maximum of $1 million in interest rates from mortgage debt secured by a first and second home.
2. Points: You can fully deduct points associated with a home purchase mortgage. You cannot deduct a mortgage broker's commission. Homeowners who refinance can immediately write off the balance of the old points and amortize the new points.
3. Equity Loan Interest: You may be able to deduct some of the interest you pay on a home equity loan or line of credit. But, the IRS limits the amount you can claim as "home equity" for this deduction.
4. Home Improvement Loan Interest: If you take out a loan to make significant home improvements, then you can deduct the interest on the loan. However, the work must be a "capital improvement" rather than ordinary repairs.
5. Property Taxes: Otherwise known as "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.
6. Home Office Deduction: If you use a portion of your home exclusively for business purposes, you may be able to deduct home costs related to that portion, such as a percentage of your insurance and repair costs, and depreciation.
7. Selling Costs and Capital Improvements: If you sell your home, you can reduce your taxable capital gain by the amount of your selling costs. Those selling costs include title insurance, legal fees, real estate broker's commissions, advertising costs, and inspection fees. All selling costs are deducted from your gain. The gain is your home's selling price minus the deductible closing costs, selling costs and tax basis in the property.
8. Capital Gains Exclusion: Since the passage of the Taxpayer Relief Act of 1997, many home sellers no longer suffer a taxable gain. Married taxpayers who file jointly get to keep nearly $500,000 in profit on the sale of their home -- tax free. Single folks and married taxpayers, who file separately, get to keep up to $250,000 each, also tax free.
9. Mortgage Tax Credit: A home-buying program called mortgage credit certificate (MCC) allows low-income, first-time homebuyers to benefit from a mortgage interest tax credit of up to 20 percent of the mortgage interest payments made on a home. However, you should apply to your state or local government for an actual certificate. This credit is available each year you keep the loan and live in the house purchased with the certificate.
For more information on the tax benefits of owning a home, visit Military.com's Finance center.
Let's face it -- the American tax system isn't known for its simplicity. And the confusion factor just climbs higher when you lived or worked in more than one state during the year.
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