As a home owner, you will be able to deduct mortgage interest (which is going to be most of your monthly mortgage payment initially) on your federal tax return. You can also deduct any points paid and the interest on a home equity loan or line of credit or second mortgage. The real estate taxes that you pay on the home are also deductible on your federal tax return. Between these two deductions – mortgage interest and real estate taxes – much of your monthly shelter costs as a home owner should be tax deductible.
Although the mortgage interest tax deduction will shrink a bit each year as more of your monthly mortgage payment goes toward principal, this tax advantage will last for years. And when you decide to sell your home, any gain or profit you make on the sale up to $250,000 ($500,000 for married couples) is tax free as long as you have lived in the home as your primary residence for 2 out of the last 5 years.
Please note: We are not intending to provide tax advice. Consult a tax attorney or accountant for more information regarding your individual situation.