Tired of giving money to a landlord? Invest your money in home ownership, and reduce your taxes at the same time. Welcome to home ownership, the closest you may ever get to a "sure thing" investment. Not only does buying a home give you a place to call your own, it's also a great way to reduce your income taxes. The qualified mortgage interest you pay and your real estate taxes are both deductible. That's not to mention that with a little luck and a reasonable maintenance policy, most homes increase in value over time. Know All Your Deductions With the purchase of your first home and the new deductions it brings, you will likely be eligible to change from using the standard deduction to itemizing deductions on Schedule A. That means you will need to keep records of other available itemized deductions. Among the more common itemized deductions are: Medical and dental expenses State and local income taxes Personal property taxes (usually on your car) Gifts of cash and property to qualified religious and charitable organizations Casualty and theft losses Employment-related expenses Tax preparation fees Investment expenses Gambling losses to the extent of your winnings Some of these deductions are subject to limitations, so follow the directions for Schedule A carefully. Interesting Facts about Interest Mortgage interest you pay on loans up to a million dollars ($500,000 if you use the married filing separately status) is deductible, provided you used the money to buy, build, or improve your home. Mortgage interest you pay on loans secured by your home and used for a purpose other than to buy, build, or improve your home is deductible for loans up to $100,000 ($50,000 if you use the married filing separately status) or to the extent of your home equity, whichever is less. As you gain equity in your home, use these lines of credit wisely: If you fail to make the payments, you put your home at risk. Lastly, let's not forget points, also called loan origination fees. One point equals one percent of your loan. Points you pay (and even points the seller pays) when you purchase your home are generally deductible in full the year you pay them. Alternatively, you may amortize the points over the term of your mortgage. The wise choice is usually the immediate deduction, but not always. Moving on Up When you decide to move on up to bigger and better things, The IRS allows you to exclude from taxable income gains on the sale of your home up to $250,000 ($500,000 if you file jointly with your spouse). You generally may claim this exclusion only once in any two-year period. A loss on the sale of your home is, however, not deductible. More on Home Buying When you purchase remember: Purchasing your home at  the beginning of the year generally increases the likelihood that you'll be able to deduct your mortgage interest and property taxes in the first year. Mortgage interest and points are deductible as itemized deductions on Schedule A. If you buy your home at the end of the year, your itemized deductions may be less than your standard deduction simply because you've made only a few monthly payments. In that case, you're better off with the standard deduction even though you cannot deduct your interest or taxes. If this is the case and you paid points, you may choose to write off the points over the life of the mortgage. Frequently Asked Questions: Question: On my closing statement, all of my costs are identified as points. Does that mean I can deduct all of my closing costs? Answer: No. Deductible points must be paid to obtain a lower interest rate. If you didn't pay an amount to get a lower interest rate, none of your points are deductible. If you did pay an amount to get a lower rate, check with your lender to see what part of your closing costs are considered to be interest paid. You will also want to review the flowchart in IRS Publication 17 to make sure the points meet the other tests to be deductible Question: How long do I have to wait before I can withdraw money from an IRA without penalty to buy a first home? I'm much younger than 59 1/2. Answer: There is no age limit for the exception to the penalty for IRA distributions used to buy a first home. The exception applies only to the first $10,000 that is used to buy the home. The taxable portion of the distribution is computed in the usual manner (certain distributions from Roth IRAs are not taxable). Question: Are home repairs deductible? Answer: Generally, home repairs are not deductible. Major repairs could add to your basis in your home. New carpet and a new roof are examples of major repairs.