PricewaterhouseCoopers 2008 Guide to Tax and Financial Planning

Chapter 4. Tax Advantages of Home Ownership

Home ownership carries with it many special tax advantages. This chapter takes up the tax considerations of home ownership and explains how to use the Tax Code provisions to minimize federal tax bills. For instance, a home office has become easier to claim as a business deduction. There are tax advantages for vacation home rentals, but the rules on how to treat rental fees and expenses need careful study. Interest on limited amounts of home equity loan indebtedness is fully deductible for regular income tax purposes, regardless of how the proceeds are used. However, when calculating the alternative minimum tax (AMT), if the loan proceeds are not used for investment purposes, you can deduct home equity loan interest only to the extent that the loan was used to improve the house. Points paid to secure mortgages from a bank or other lender may be treated in several ways. Finally, there are special tax breaks on gains from the sale of a principal residence.

The 2001 Tax Act has had some interesting effects on homeowners' finances as the changes brought about in it continue to be phased in. Additionally, the 2003 Tax Act's tax‐rate cuts and capital gains tax‐rate reductions have impacted your decisions regarding how to maximize the tax benefits of owning a home.

For instance, some married taxpayers whose itemized deductions are small now claim the standard deduction because it has increased to $10,700 in 2007 for married couples filing joint ...