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Bankrate's 2008 Tax Guide
Realty/capital gains
Home, sweet home. It's likely your biggest investment and it affords you some great tax breaks to boot.
 
First-time homebuyers' guide to taxes
First-time homebuyers' guide to taxes
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"Exemptions have to do with how much property tax you're ultimately paying," says Gronsky. "The taxes are assessed on the value of your house. It may be worth $200,000, but if you get a $40,000 exemption for being a veteran or every homeowner gets that amount, you will be paying taxes on just $160,000 of value."

The types and amounts of homeowner real-estate-tax exemptions vary greatly across the United States. Check with your local officials about what's available and what you need to do to qualify for the exemptions.

"Even before you buy, you should find out from your settlement attorney, real estate agent or county officials what exemptions and deductions you do get," says Kass.

10. Planning ahead
After you finish your first tax return as a homeowner, use it to plan for the next one.

In early December, Kass says, "ask yourself, 'Do I need more deductions this year?' 'Am I making more money this year or will I next year?' 'Can I prepay my January (mortgage) payment and real estate taxes in December?'

"At the end of the year, if you feel you can use an added mortgage interest deduction this year instead of the next year, as long as you make the payment early (by Dec. 31), you can deduct it. The same with property taxes. Pay them this year to deduct them on your next return."

Also be sure to hang onto your HUD-1 sheet. Remember all those charges you couldn't deduct on your return? They can be added to your home's basis. The basis, which is the total of your purchase price plus closing costs plus any substantive improvements you make to the residence, is what you subtract from the sales price you receive to determine your profit.

"Capital improvements are things like putting on a new roof, redoing the kitchen, remodeling the bathroom," says Gronsky. "A lot of people do these things even before they move in.

"They're not deductible this year but might help you when you sell the house in terms of how much capital gains you have to pay."

If you're single, you can make up to a $250,000 profit on your home and not owe any taxes on the money as long as you've lived in the house two out of the last five years prior to the sale. Couples who file jointly get twice that exclusion amount. If your home's value appreciates substantially, the items added to the basis, if you keep track of it, could help you keep your profit in the tax-free range.

"Set up a record-keeping system that helps you track your home-related costs and does so in a way you can retrieve the information if the IRS wants to get a look at it," says Garwitz.

Also, Kass says to "absolutely hang onto to HUD-1 for three years after you sell your last house." That's how long the IRS has to come back and look at your return.

But even if you have no audit concerns whatsoever, it's a good idea to hold onto this document since it's a record connected to what's probably your largest personal investment.

-- Updated: Jan. 10, 2008
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