Tax time is just around the corner, and if you're a homeowner, a homebuyer or shopping for a new home here in San Bernardino County, you should know that some of the most important and welcome benefits of homeownership are the tax advantages offered to homeowners.

In addition to the tax credit for first time homebuyers offered by H.R. 1, The American Recovery and Reinvestment Act of 2009 (www.FederalHousingTaxCredit.com), homeowners are able to deduct many home - related expenses whether their home is a single - family residence, town home or condominium.

So, to make the most of the tax advantages offered by homeownership, here is an overview of many of the most important tax advantages homeowners enjoy.

First of all, when it comes to taking advantage of these tax breaks, you will want to decide whether to file your taxes with 1040 long form and Schedule A where you'll have to detail your deductible expenses or claim the standard deduction. To determine which is best for you, you must find your standard deduction amount based on your filing status ($5,450 for taxpayers who are single or married but filing separately, $8,000 for heads of households and $10,900 for married couples who file joint returns). Then compare that number to the total expenses you can itemize and file using the method that gives you the larger deduction.

The biggest tax break homeowners enjoy is the mortgage interest deduction. The bulk of your monthly house payment usually goes towards paying the interest on your mortgage and that interest is deductible for mortgages less than $1 million. If you pull out extra cash through refinancing or if you have a home equity loan or line of credit, that interest can also be deductible within IRS guidelines.

Generally, equity debts of $100,000 or less are fully deductible, although the remaining amount of your first mortgage could restrict your tax break. However, because this deduction for certain income groups may be affected by passage of the President's upcoming budget proposal, you will want to consult with a tax professional before deducting this expense.

If you paid points to get a better rate on your home loan that may offer a tax break as well. The IRS allows you to deduct points in the year you paid them if the loan is to purchase or build your main home or if payment of points is an established business practice in your area and the points were within the usual range. Make sure your loan meets all the qualification requirements so that you can deduct points all at once. A homeowner who pays points on a refinanced loan is also eligible for this tax break, but in most cases the points must be deducted
over the life of the loan. When the loan money is used for work on the house securing the loan, the points are deductible in the year the loan is taken out. If you use the extra cash for something else, such as buying a car, you still can deduct some the points on one tax return. The point deductions must be parceled out over the equity loan's term. Keep in mind that only the portion of the points related to refinance money you used for home improvement that is eligible for immediate tax-deduction purposes. The points attributable to the refinanced existing mortgage balance still must be amortized over the life of the refinanced loan.

The second major deduction homeowners can claim is property taxes, which go into an escrow account for payment once a year. This amount should be included on the annual statement you get from your lender, along with your loan interest information. These taxes will be an annual deduction as long as you own your home.

If you're a first time homebuyer, keep your settlement papers handy to find additional tax payment data. When the property was transferred from the seller to the buyer, the year's tax payments were divided so that each of you paid the taxes for that portion of the tax year during which you owned the home. Your share of these taxes is fully deductible. However, if your settlement statement shows any money you paid into an escrow account for future taxes, this amount is not deductible. You can only deduct the taxes in the year your lender actually pays them to the property tax collector.

Property taxes usually must be deducted as an itemized expense on Schedule A. However, a new tax law allows homeowners who use the standard deduction to add at least some of
their property tax payments to their standard amount. This option helps homeowners who don't have enough deductions to itemize, but who pay property taxes on their personal residence. This additional standard deduction amount is in effect through the 2009 tax year.

You'll want to consult with a tax professional before listing these deductions because some items related to home buying or homeownership may not be deductible, so make sure you consult with a tax professional to make sure you're getting all of the benefits of the American Dream - your home.

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PUBLISHED MARCH 14, 2009

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