Homeowners generally can deduct the interest they pay on their mortgages–but that’s not the only tax benefit available if you own a home.
* Real estate property taxes are usually deductible.
* Anyone who builds a home can deduct the sales tax paid on homebuilding materials. That amount can be added to the sales tax number from the IRS table, if you choose to deduct state sales tax rather than state income tax.
* Frequently, homebuyers pay "points"–extra charges–at closing in order to obtain a mortgage. They might be called discount points, loan discounts, loan origination fees, or maximum loan charges. Because points are usually paid in return for a lower interest rate, they’re really prepaid interest so they are generally tax-deductible.
* Points paid during refinancing must be deducted over the life of the loan. For a thirty-year loan, you get to deduct 1/30 of that amount each year.
However, if you do a "cash out" refinance and use some of the funds to improve your primary residence, a portion of the points are deductible in the year you paid them. For example, if you obtained a $200,000 loan via refinancing and $50,000 was used for home improvement, then one-fourth of the points are deductible in the year you obtained the loan.
