Most potential and current homeowners enter the housing market with the idea of improving their living situation. Maybe some of these upgrades take the form of a whirlpool tub, a wine cooler, or the simple luxury of central air conditioning, but one universal perk of homeownership shows up during tax season. 

Along with a sense of self-satisfaction and wealth establishment, owning your own home comes with a variety of tax deductibles that could add up to large savings for your family. And, even though homeowners don't get the simplicity of "EZ" tax forms, most find that the tax breaks on their new "1040" forms are well worth the effort. 

Here are some of the different tax benefits of homeownership: 

1. Your Monthly Mortgage Payment's Interest 

The most common and biggest tax break among homeowners comes from their mortgage's interest. Unless you've taken out a mortgage of greater than $1 million, the interest you pay off with your monthly mortgage payment is deductible from your taxes, which can result in an enormous break over the course of the year.

For a second home, this remains true, but there is a special rule for this situation. In order to collect tax deductions on a second home's mortgage interest, homeowners must vacation there for at least 14 days or 10% of the lease length if they are renting it out. 

2. Other Interest Tax Breaks

The extra cash you pulled out when you refinanced? Your home equity loan? That line of credit for home improvements? All of these equity debts are deductible if they are less than $100,000. 

3. Your Mortgage and Points

Mortgage Market Specialist Dan Green writes: 

Discount points are different from "origination points", which are fees a bank charges to "do your loan". By contrast, discount points are fees specifically used to buy-down your rate...A few examples of how to calculate discount points follow, assuming a loan size of $200,000 :

• 1 discount point would cost $2,000
• 0.5 discount points would cost $1,000
• 0.25 discount points would cost $500

Discount points can be tax-deductible, depending on which deductions you can claim on your federal income taxes. Discount points paid in conjunction with a home purchase can be 100% deductible in the year in which they're paid. Be sure to check with your accountant.

Discount points are worth 1% of your mortgage, and the IRS views them as prepaid mortgage interest. By putting a little extra money into your home from the get-go, you can take advantage of tax breaks later in the year. Just make sure not to confuse your attorney and appraisal fees, title insurance, and credit report costs with this tax - these costs in the process of buying a home are nondeductible.

This protocol, however, changes for refinanced homes. In these cases, the tax deductions of points must be amortized over the life of the loan, instead of all at once in the year of the mortgage's creation. 

4. Home Improvement Loans

Any home improvement loan that you take out for less than $100,000 is tax deductible, unless the loan exceeds the value of your property. The same goes for the interest on a home equity line of credit. 

5. Property Taxes

Ask your accountant what the rules are in your state, but in many cases those property tax payments are deductible from your state income taxes.  

6. Energy Efficiency and Renewable Energy Credits

Because both of these incentives will be ending on December 31, 2016, there's no time like the present to take part in their offerings. The IRS will reimburse you $500 on your taxes if you install energy-saving devices like storm doors and efficient HVAC systems. Just don't go out and spend that $500 on new windows - The IRS will only cover $200 of those costs. 

When it comes to renewable energy, the IRS will give you a tax break that covers a whopping 30% of any wind or solar power installations you add onto your home. More than 600,000 people have used this credit since it began in 2010. 

7. Buying a First Home

The IRS will allow potential first-time homebuyers to borrow up to $10,000 from their IRA accounts without penalty and half of their 401(k) accounts as long as it doesn't exceed $50,000. This enables smart savers to partake in low mortgage rates without facing increased tax obligations down the road. 

When you combine these breaks with the currently low mortgage rates available, it's easy to see that it's a great time to buy a home. When you're ready to begin your search, contact the Real Group Real Estate team. We look forward to helping you find a new place to call home!