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Benefits of Buying a House

The American dream of owning a home is an attainable reality. Some first-time buyers are skeptical of purchasing a home with the uncertainty surrounding the housing market and there job security. But there are many benefits of owning a home.

Mortgage Interest Deductions
Mortgage interest is an itemized deduction on your Schedule A. Generally, mortgage interest is fully deductible on your personal tax return. In the first half of the mortgage's life, the interest is the largest component of your mortgage payment.

Property Tax Deductions
Real estate property taxes paid for a first home and a vacation home are fully deductible for income tax purposes. Real estate tax is an itemized deduction on your Schedule A.

Capital Gain Exclusion
As long as you have lived in your home for two of the past five years, you can exclude up to $250,000 for an individual or $500,000 for a married couple of profit from capital gains. You do not have to buy a replacement home or move up. There is no age restriction. You can exclude the above thresholds from taxes every 24 months, which means you could sell your residence every two years and pocket the profit (subject to limitations) free from taxation.

Preferential Capital Gain Tax Treatment
If you receive more gain than the allowable exclusion upon sale of your home, that gain will be considered a capital asset as long as you owned your home for more than one year. Capital assets receive preferential tax treatment at lower rates.

Buying a home now can almost ensure your home's appreciation in the future. Current mortgage rates are near historic lows and home prices in many parts of the country are down. Additionally, many foreclosed homes are available for a fraction of the original cost. This can translate to a higher gain on sale if you decide to sell once the housing market rebounds.

IRS Publication 530 contains tax information for first-time home purchasers.
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