Sales Tax and Loan Interest

• The IRS allows you to deduct any real estate sales taxes you paid to a tax authority for the purchase of your home from your federal return. This is a one-time deduction, unless you can manage to purchase a new home each tax year. You may also deduct any interest you pay on your monthly mortgage installments for as long as the loan exists. These deductions allow you to recoup some of the added costs of purchasing a home.
  
  

Real Estate Tax Deductions

• You may deduct any annual real estate or property taxes assessed by the local or state government from your federal return according to IRS Publication 530. This is the case as long as the governing body assessing the taxes bases the tax rate off of the assessed value of your property. These taxes must be for the good of the public and cannot be for a special privilege or service rendered to you by the local or state government. You must deduct your real estate taxes using Schedule A of IRS Form 1040.
  
  

Discount Points Benefits

• A discount point is a purchase you make on your home loan to lower the interest rate of the overall mortgage. The more points you buy from the lender, the lower your interest rate but the higher overall balance of your mortgage. The IRS allows you to deduct a portion of money paid towards your discount points each year over the life of your mortgage. This allows you to both keep your mortgage interest rate low and recoup some of the cost for purchasing the discount points.
  
  

Mortgage Interest Credit

• A mortgage interest credit is a direct deduction from the amount of tax you owe based on your mortgage interest payments for a given tax year. A credit is much better than a deduction because it directly reduces your taxes owed. To qualify for this deduction, you must have a mortgage credit certificate issued by your local or state government. You may only obtain this certificate before you purchase your home. Once the sale is final, you lose out on the potential tax break.