What home-buying costs are deductible?
Any points you or the seller pay to purchase your home loan are deductible for that year. Property taxes and interest are deductible every year. But while other home-buying costs (closing costs in particular) are not immediately tax-deductible, they can be figured into the adjusted cost basis of your home when you go to sell (any significant home improvements also can be calculated into your basis). These fees would include title insurance, loan-application fee, credit report, appraisal fee, service fee, settlement or closing fees, bank attorney's fee, attorney's fee, document preparation fee and recording fees. Points paid when you refinance an existing mortgage must be deducted ratably over the life of the new loan.

Should I buy a vacation home?
Today a vacation home can be purchased for investment purposes as well as enjoyment. And yes, there are tax benefits. Some people buy a vacation home with the idea of turning it into a permanent retirement home down the road, which puts them ahead on their payments. Another benefit is that the interest and property taxes are tax deductible, which helps to offset the cost of paying for a second home. A vacation home also can be depreciated if you live in it fewer than 14 days a year, or 10 percent of the rented days - whichever is greater.

How do I save on taxes?
Here are some ways to save money on taxes:
* Mortgage interest on loans up to $1 million is completely deductible for the year in which you pay it to buy, build or improve your principal residence plus a second home.
* Points, or loan origination fees, also are deductible no matter who pays them, the buyer or the seller.
* Most homeowners, except the wealthy and those living in high-priced markets, no longer need to worry about capital gains taxes. The exemption has been raised to $500,000 for married couples and $250,000 for single owners. It can be taken every two years. Homeowners should always keep all receipts of permanent home improvements and of mortgage closing costs. If you do have to pay capital gains taxes, these costs can be added to your adjusted cost basis. Consult your tax adviser for more information.

Are taxes on second homes deductible?
Mortgage interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics.

Are there tax credits for first-time home buyers?
Yes. Check with your mortgage representative or accountant. Requirements vary from program to program. Here is a list of four general requirements to keep in mind:
* Some credit may be claimed only on your owner-occupied principal residence.
*There are maximum income limits, which vary by locality and family size.
* You must be a first-time home buyer, which means you must not have had any kind of ownership interest in a principal residence during the past three years. This restriction may be waived, however, if you are buying property within certain target areas.
* Allocations must be available. A local program may have to decline new applications when it runs out of funds.

The home mortgage deduction
The mortgage interest deduction entitles you to completely deduct the interest on your home loan for the year in which you paid it. Mortgage interest is not a dollar-for-dollar tax cut; it reduces taxable income. You must itemize deductions in order to do this, which means your total deductions must exceed the IRS's standard deduction. Another point to remember is that the amount of interest on your loan goes down each year you pay on your mortgage (all standard home-loan formulas pay off interest first before significantly paying into principal). That's why paying extra on your principal every year can help you pay off your loan early.

How are fees and assessments figured in a homeowners association?
Homeowners association fees are considered personal living expenses and are not tax-deductible. If, however, an association has a special assessment to make one or more capital improvements, condo owners may be able to add the expense to their cost basis. Cost basis is a term for the money an owner spends for permanent improvements throughout their time in the home and is used to reduce eventual capital gains taxes when the property is sold. For example, if the association puts a new roof on a building, the expense could be considered part of a condo owner's cost basis only if they lived directly underneath it. Overall improvements to common areas, such as the installation of a swimming pool, need to be considered on a case-by-case basis but most can be included in the cost basis of any owner who can show their home directly benefits from the work.

Where do I get information on IRS publications? 
The Internal Revenue Service publishes a number of real estate publications. They are listed by number: 
* 521 "Moving Expenses"
* 523 "Selling Your Home" 
* 527 "Residential Rental Property"
* 534 "Depreciation" 
* 541 "Tax Information on Partnerships"
* 551 "Basis of Assets"
* 555 "Federal Tax Information on Community Property" 
* 561 "Determining the Value of Donated Property" 
* 590 "Individual Retirement Arrangements" 
* 908 "Bankruptcy and Other Debt Cancellation"
* 936 "Home Mortgage Interest Deduction" 
Order by calling 1-800- TAX-FORM.

How do I reach the IRS?
To reach the Internal Revenue Service, call (800) TAX-1040.

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