Homeowner tax perks
By Kay Bell • Bankrate.com

One of the best things about owning a home is that you can deduct many home-related expenses when it comes to file your federal income tax return.

These tax breaks are available for any abode -- mobile home, single-family residence, town house, condominium or cooperative apartment.

The bad news is: To take full tax advantage of your home, your taxes will likely get more complicated. You're not living on "E-Z" Street anymore; you've moved to the 1040 long form and Schedule A, where you'll have to itemize deductions.

For many homeowners, the effort of itemizing is well worth it at tax time. Some, however, might find that claiming the standard deduction remains their best move. How do you decide? First, find your standard deduction amount, based on your filing status: $5,000 for taxpayers who are single or married but filing separately; $7,300 for heads of households; and $10,000 for married couples who file joint returns. Then compare it to the total expenses you can itemize and file using the method that gives you the larger deduction.

To help you figure your possible Schedule A tax breaks, here's a look at homeowner expenses you can deduct, ones you can't and some tips to get the most tax advantages out of your new property owning status.

Mortgage interest
Your biggest tax break is reflected in the house payment you make each month since, for most homeowners, the bulk of that check goes toward interest. All that interest is deductible, unless your loan is more than $1 million. If you're the proud owner of a multimillion-dollar mortgaged mansion, the Internal Revenue Service will limit your deductible interest.

Interest tax breaks don't end with your home's first mortgage. If you took advantage of low rates and your real estate's growing value to pull out extra cash through refinancing, or decided, instead, to get a home equity loan or line of credit, that interest is also deductible, within IRS guidelines.

Generally, equity debts of $100,000 or less are fully deductible. But even then, the remaining amount of your first mortgage could restrict your tax break. This could be a concern if you excessively leverage your house.

When a homeowner takes out an equity loan that, when combined with the first mortgage amount, increases the debt on the house to an amount more than the property's actual value, the homeowner faces additional deductibility limits. In these cases, the IRS says you can deduct the smaller of interest on a $100,000 loan or your home's value less the amount of your existing mortgage.

For example, you bought your home three years ago with a minimal down payment. Your mortgage balance is $95,000 and the house is now worth $110,000. Your bank says you qualify for a 125 percent loan-to-value equity line, or $42,500 ($110,000 x 125 percent = $137,000 - $95,000 left on your first mortgage). To pay for your daughter's college tuition and buy her a car to get to school, you take the bank up on the offer, thinking the interest deduction on the loan would be icing on the tax-break cake.

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