Tax Tips for Homeowners Points paid on home mortgages may be deducted in the tax year you pay them. You don't have to write a separate check for the points as long as you provide funds for down payments, escrow deposits, etc. at least equal to the points paid.  In addition, the buyer can deduct points paid by the seller. Points paid on a refinanced mortgage do not qualify for current deduction; you deduct them pro rata over the life of the loan.  There is an exception if part of the refinanced funds are spent on home improvements.  You may be able to deduct the same percentage of points paid as the percentage of the loan that was used for improvements. If you refinance for a second time and, in so doing, pay off your first refinancing, the balance of points not yet deducted becomes deductible in the year of the second refinancing. A home-equity loan (where available) may enable you to finance purchses of consumer items and maintain deductibilty of interst.  Interest on consumer loans is not deductible, so this option for homeowners can be important.  Beware that you do not borrow beyond $100,000, or you'll lose the interest deduction on the excess.  Also realize that if you cannot make payments on the loan, you stand to lose your house. If you suffer a home casualty loss in a disaster that causes your area to be designated a federal disaster area, you have the option of taking the loss on your prior year's return.   That way you may have funds that much sooner to help in repairing your home. Not all home improvements will increase your home's resale value.  Home improvements most likely to have their cost recovered at resale include such changes as adding a bath, adding a greenhouse, and remodeling the kitchen.  Improvements you're less likely to recover the cost of are adding a swimming pool, a tennis court, or finishing the basement.

Tax Planning and Your Home The $250,000/$500,000 gain exclusion rules are good news for most taxpayers.  Because most home sales will not be subject to tax whether there is a replacement home purchased or not, the need for recordkeeping may be lessened for many taxpayers.  However, homeowners with very large profits locked in their homes could face a tax they previously could have deferred under prior rollover rules. Because home prices can appreciate significantly over a period of years, you cannot be certain that your gain in a future home sale will always be at,  or under, the exclusion limit.  You may not always meet the two-year ownership and use requirements for full gain exclusion.  For these reasons, it's generally advisable to continue maintaining good records of home costs and improvements in order to verify the  basis of your home when it is sold. Good records will also be necessary if an audit requires you to document your basis in a home sale.  This could be important particularly if you rented out a portion of your home or took deductions for a home office. The exclusion of gain for home sales applies to "principal residences."  This definition includes more than just a house.  A condominium, duplex, apartment, even a houseboat or yacht can qualify as long as it's your principal residence. Planning can allow gain on the sale of a rental or vacation home to meet the requirements for the home sale exclusion.  You can convert the property to your personal residence prior to the sale.  If you meet the two-year ownership and occupancy requirement, some or all of the gain on the sale may qualify for the exclusion. You can rent out of your home or vacation home for 14 days or less every year and pocket the rental income tax-free.