The subprime mortgage meltdown of 2008 has not diminished the tax advantages of home ownership in America. Ownership of a personal residence is still easily the biggest tax break available to individual filers who are able to afford this luxury. It is the only type of investment that offers both current and future tax breaks without having to be placed inside a tax-deferred account like an IRA. Here is a list of the major tax deductions available to homeowners in 2010. (For related reading, also check out 10 Sources Of Nontaxable Income.)
IN PICTURES: 9 Ways To Use A Tax Refund

Mortgage Interest
This is still probably the largest current deduction available to homeowners in America. Millions of homeowners write off billions of dollars of mortgage interest each year on their tax returns. Mortgage interest is reported to homeowners on Form 1098, which is issued by the mortgage lender. Homeowners then report this information in turn on Schedule A of the 1040. This expense alone is often enough to allow many taxpayers to itemize. (For more information, see Why You Should Itemize Your Tax Deductions.)

Real Estate Taxes
The taxes assessed on personal residences are another major expense that is reported on Schedule A as an itemized deduction. This tax is paid to the state in which the residence is located and is usually also reported by mortgage lenders on Form 1098. If not, then the state department of revenue website usually has this information.

Private Mortgage Insurance
Homeowners who have less than 20% downpayment must pay a form of insurance, known as private mortgage insurance (PMI) to insure that the remaining balance of their mortgage is paid in the event that they default on the payments. In some cases, PMI can add over a hundred dollars onto the monthly mortgage payment. For many years, this expense was nondeductible, but recent legislation has allowed taxpayers to deduct this cost as well. This makes all mortgage payments completely deductible for those who are able to itemize deductions, except for the portion that goes towards homeowners' insurance, if this is included with the mortgage payment.

IN PICTURES: Top 10 Solutions For A Big Tax Bill

Tax-Free Capital Gains Treatment
This is far and away the largest capital gains tax break afforded to individual investors in the tax code. Homeowners can reap the first $250,000 of capital gain on the sale of their homes tax-free, and married couples who file jointly can rake in twice this amount. There used to be a set of somewhat restrictive rules placed upon the tax break for this sale, but subsequent legislation largely removed these restrictions, thus allowing virtually all homeowners to enjoy this benefit.

First-Time Homebuyers Tax Credit
This is one of the largest tax credits available in the tax code. First time homebuyers can take a credit of 10% off the purchase price of their house up to a maximum of $8,000 for the purchase of a home, and long-term residents can take a 10% credit of up to $6,500. However, these credits expired in April of 2010, so any homeowner who closed on their home purchase in May or later is ineligible to take this credit. However, some members of the U.S. military are still eligible to receive this credit until May of 2011. The credit is also disallowed on any home purchase that exceeds $800,000. (For related information, see The Truth About The First-Time Homebuyer Tax Credit.)

The Bottom Line
The American home is the only investment available in the tax code that offers current deductions, tax credits and tax-free treatment of capital gains. Most other types of investments get one or two of these breaks at most. Although buying a home now is more difficult than before, the tax advantages of home ownership still make it the American dream.

For the latest financial news, see Water Cooler Finance: Canadian Takeover And U.S. Tax Breaks.

Related Articles
  1. Tax Strategy

    A Beginner’s Guide To Tax-Efficient Investing

    Tax-efficiency is a measure of how much of an investment’s return remains after taxes are paid.
  2. Term

    How A Schedule K-1 Works

    Schedule K-1 is a U.S. tax document used to report income, losses and dividends.
  3. Investing Basics

    Know Your Stock Cost Basis

    A stock’s cost basis is its purchase price plus all reinvested dividends and commissions.
  4. Taxes

    10 Best States for Property Taxes in 2016

    Whether you are thinking of moving or just curious to see whether your state is in the top 10, these rankings are eye-opening.
  5. Investing Basics

    Understanding How Oil Companies Pay Taxes

    Read about how big oil corporations pay taxes, and learn about tax exemptions and the option to defer. Discover the argument about big oil being given tax exemptions
  6. Real Estate

    Best 3 Mortgage Calculator Websites without PMI

    Discover the three best mortgage calculator websites online that do not require you to factor private mortgage insurance (PMI) into your payments.
  7. Taxes

    Tax-Saving Advice for IRA Holders

    Be informed about benefits and deductions that may apply to you and avoid costly mistakes on your return.
  8. Retirement

    4 Unusual Ways to Boost Social Security Benefits

    Working the system to get the highest legal Social Security benefits just got harder. Two long-time benefits strategies expired with the 2015 budget bill.
  9. Wealth Management

    Using Insurance in a Business Succession Plan

    How to use life and disability insurance to help fund a business succession or buyout plan.
  10. Economics

    What's an Encumbrance?

    An encumbrance is a claim against a property by another party.
  1. Do FHA loans have private mortgage insurance (PMI)?

    he When you make a down payment from 3 to 20% of the value of your home and take out a Federal Housing Administration (FHA) ... Read Full Answer >>
  2. Are personal loans tax deductible?

    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
  3. Does renters insurance cover storage units?

    An all-perils renters insurance policy provides coverage for the contents of storage units. Most policies limit the amount ... Read Full Answer >>
  4. Does renters insurance cover personal injuries?

    Renters insurance provides two main forms of coverage – liability and contents insurance – and they are offered together ... Read Full Answer >>
  5. Does renters insurance cover flooding?

    An all-perils renters insurance policy does not cover damage from a flood. Consumers sometimes confuse a pipe bursting with ... Read Full Answer >>
  6. Does renters insurance cover mold?

    An all-perils renters insurance policy typically provides a low set amount of coverage for damage caused by mold as long ... Read Full Answer >>
Trading Center