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Gimme Shelter: Why Your Home is the Best Tax Shelter You Have

If you're living in a rental property, then you may be missing out the chance to save hundreds, even thousands, on your tax bill, while all the while helping your landlord prop up his own financial worth. Among the many benefits of owning your own home are the tax breaks that come along with it. For many people, home ownership is the number one tax deduction they have available to them, and the savings can be huge.

Your home can be a tax haven for you in two ways. The first involves the interest on your mortgage loan. Every bit of money you spend on paying the interest on that loan is tax deductible. For many years at the start of your loan, your mortgage payments are going almost entirely towards interest, and not principle, so for a while, your entire mortgage payment every month may be tax deductible. Think of how that adds up, even if your mortgage payment is relatively low; over the course of a year that will add up to a substantial amount of cash you can deduct from your tax bill. Even when you begin to make a dent into the loan amount itself, you will still be paying some interest, and every penny is tax deductible.

The other way home ownership gives you more bang for your buck happens when you sell your home. The Tax Bill of 1997 gives homeowners a huge break on capital gains income from the sale of a home. Under this law, you can keep $250,000 earned through a home sale completely tax-free. Under normal circumstances, the government would take at least 20% of that money, but you make that income through a real estate transaction, you keep all the money, free and clear. What's more, if you're married, you can each keep $250,000, so in all you can walk away with $500,000 that the IRS cannot touch. This is literally the only time you can pocket that kind of money without paying taxes, and it only available to you as a homeowner.

Aside from those two major tax breaks offered by the federal government, there may still be other ways you can deduct even more money from your taxes through your home. In some places, and in some income brackets, portions of your home insurance payments are tax deductible. If you have a home office, you may be able to make some deducts based on the expenses of having the office there (internet, phone, lighting, etc). The best way to make sure you squeeze every deduction possible out of your home is to sit down with a financial planner who can help you make sure you claim all the obvious and not so obvious tax deductions.

One last tax deduction you shouldn't forget as a homeowner, and this one might surprise you. You can deduct your taxes from your taxes. That's right; the property taxes you pay to the state are completely tax deductible from your federal taxes. Nothing like getting the money you put out right back into your pocket!

The federal government believes strongly in encouraging home ownership, and they have many programs in place to help make that happen. Additionally, your state may also have some tax incentive programs for homeowners, so make sure you don't leave any stone unturned. It is often said that your home is your biggest investment, and this is certainly true, but this huge expense could pay you back in spades every year when the dreaded tax season rolls around.