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One compelling reason for owning a home is that you’ll pay less taxes. Subject to limitations, the following home-related expenses are deductible:
- Interest on your mortgage
- Property taxes
- Interest on home equity loans
- Points
Generally, the points you pay on your mortgage are deductible in the year you pay them. If you refinance your mortgage, the deduction is spread out over the life of the loan.
The tax breaks from buying a home may not be as good as you think. You’re really only getting the benefit of a tax deduction to the extent that it exceeds your standard deduction. The standard deduction for a single person is $5,150 in 2006. Your home-related tax deductions are only beneficial to the extent they exceed your standard deduction.
The best tax break from a home is that you may make a profit of up to $250,000, if you’re single, or $500,000 if you’re married, on the sale of your primary residence without paying federal taxes. Here’s how you qualify for that tax break:
- It must be your primary residence.
- You must live there for at least two years.
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