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Bankrate's 2008 Tax Guide
Realty/capital gains
Home, sweet home. It's likely your biggest investment and it affords you some great tax breaks to boot.
 
First-time homebuyer's guide to taxes
First-time homebuyers' guide to taxes
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4. Points pay off at tax time
Your HUD-1, and probably the 1098 you'll get from your lender, will list any points you paid for your mortgage. A point is 1 percent of your loan amount. Buyers sometimes choose to pay points to obtain a lower interest rate.

The IRS allows you to deduct points for the tax year in which you purchase the home. You include the points paid in the same section of Schedule A where you claim your mortgage interest.

"For a purchase of a principal residence, you can choose to amortize or deduct the points all at once," says Gary Garwitz, CPA and partner at BKD LLP in Springfield, Mo. "Most people, and usually first-time buyers, are going to fall into the category of claiming it all at once."

This means if you paid 1.5 points on a $200,000 home loan, that $3,000 will go directly toward your itemized deduction amount.

You'll find points on lines 801 and 802 of the HUD-1, says Gronsky. But don't be concerned if you don't see the term "points" on the settlement sheet.

"This amount could be called 'loan origination fee,' 'loan discount fees' or 'points,'" says Kass. "The name is not important. What is important for most loans is they are fully deductible by the new homebuyers as long as they are reasonable and consistent in the area where you bought the home."

The tax law requirement that points be in line with your real estate market is yet one more reason to avoid lenders who charge exorbitant amounts. "Ten points is probably not consistent or reasonable anywhere," says Kass, "but some loan sharks are charging that."

Another nice tax feature of points: Even if the seller paid them, the buyer generally gets to claim the deduction.

5. The tax-deduction value of property taxes
The third major home-related tax deduction is real estate taxes.

This can get complicated, depending on when you bought your house and your jurisdiction's tax year.

For example, your tax year runs January through December and you buy July 1. Taxes are due in March, says Kass.

"When you closed on your home, the seller had already prepaid taxes in March for the full year," he says. "So at closing, the buyer would reimburse the seller for the amount from July 1 to Dec. 31. That amount the buyer reimbursed will be shown on the HUD-1 and the buyer can deduct that for income tax purposes."

But there might be other taxes shown on the HUD-1 that aren't immediately deductible.

-- Updated Jan. 10, 2008
 
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