Too many homeowners overlook an important tax break:

The points you pay to receive a Florida mortgage loan.

On a conventional mortgage (usually a fixed-rate, 30-year loan that is not insured by a federal agency), points may be paid by either buyer or seller or split between them. Even if the seller pays all the points, the buyer enjoys the deduction. Exactly how much of one and when depends on the loan circumstances.

Loan points are fully tax deductible in the year paid if they meet all these requirements:

1. The Florida mortgage is secured by your main home, the house you live in most of the time.

2. Paying points is an established business practice in your area.

3. The points are generally what is charged in your region.

4. You use the cash method of accounting: You report income in the year you receive it and deduct expenses in the year you pay them. Most individuals do this.

5. The points are not paid in place of amounts ordinarily stated separately on the settlement sheet. That is, you cannot pay points in exchange for lower or no appraisal fees, inspection fees, title fees, attorney fees and Florida property taxes.

6. The funds you come up with at or before closing, plus any points the seller pays, must be at least as much as the points charged. The money does not have to apply just to the points. It can include a down payment, escrow deposit or earnest money. But it all must come to at least as much as the points.

For example, you took out a $100,000 Florida mortgage and were charged $1,000 (one point). However, your lender only required a $750 down payment. In this case, you cannot deduct the full $1,000 points payment, only $750 of it. The remaining $250 must be deducted over the life of the loan. And you cannot have borrowed any of the money you paid at closing from your lender or Florida mortgage broker.

7. The loan is used to buy or build your main home.

8. The points are computed as a percentage of your mortgage’s principal amount.

9. The amount is clearly shown on the settlement statement as points charged for the mortgage.

No one doubts that purchasing a house is a big deal. The number of decimal points on all Florida home loans is difficult to fathom for many borrowers.

However, a series of tax benefits are designed to help your financial cause. While this is a major investment, the government has taken steps to make it very much worth your while. Let’s take a look at a few examples of how. (Note: Because tax rules vary based on income and other factors, you should consult an accountant or financial advisor for advice on your particular tax situation.)

Mortgage interest

One of the biggest incentives to owning a home is that the interest you pay on your Florida home mortgage is tax-deductible, up to a limit of $1 million. This deduction, like most other tax breaks for homeowners, applies to ANY sort of home. This even includes a second home, as long as you spend a certain amount of time there: either 14 days each year, or 10 percent as much time as it’s rented.

Additionally, you can deduct the interest on up to $100,000 of other debt that uses your home as security - for example, a Florida home equity loan. However, the amount you can deduct may be limited if the money you borrow raises your debt above the home’s actual market value. This can sometimes happen when a lender extends you a loan based on more than the value of the property.

Wait, there’s more!

You can also deduct any amount you pay for points. In most cases, the points on a Florida mortgage to buy or build your principal home can be deducted fully in the first year. However, if you refinance, take a home equity loan, or a loan secured by a second home, the points must be deducted over the life of the new loan.

Tax-free profits

Let’s say you sell your home for a profit (well done!). The law allows you to exclude from taxes up to $250,000 in profit from this sale - $500,000 for a couple who file jointly. This exclusion also covers the sale of a parcel of land adjacent to your house, unless it’s used for business.

There are some stipulations, however. The home must be your principal residence, and you must have lived there for at least two of the previous five years. You can only claim the exemption once every two years.

Property taxes

You can claim property taxes you pay as an income tax deduction. This applies to both your principal home and any others you may own. Any money held in escrow to pay future taxes, however, is not deductible.

Moving expenses

The government allows you to write off many of your moving costs when you buy a new home if it’s at least 50 miles closer to your job than your old home. To qualify, you must continue to work full-time in the general area of your job for 39 weeks during the following year. If you’re self-employed and work in your home, any move of 50 miles or more will make your moving expenses deductible. However, you must also work full-time near the new location for 78 weeks during the next 24 months.

As mentioned earlier, speak with a tax consultant if you have any questions. Deductions vary based on a number of factors, but the overall point remains the same: Using a Florida mortgage loan to purchase a house provides you with an assortment of fiscal benefits.

The federal tax benefits for home ownership are some of the biggest andmost popular of any in the IRS tax code, writes syndicated real estate columnist Kenneth Harney.

How much are we talking?

• An estimated $81 billion for mortgage interest write-offs.
• About $15 billion for local real estate / property taxes.
• Another $24 billion for capital gains exclusions this year.

But who really capitalizes on these tax-code savings? Who gets to write off the most? New research offers insight into the billions of dollars in annual interest and property tax deductions flow, state by state, district by district. Research conducted by the National Association of Home Builders using 2003 data (the latest available) provided the following findings:

Homeowners in a single congressional district in California, the 14th District in Silicon Valley, took more in mortgage interest write-offs than all the residents of six whole states combined, claiming $3.2 billion in mortgage interest deductions during the year covered by the study. By comparison, $2.9 billion in write-offs were recorded by residents of Vermont, Wyoming, Alabama, North Dakota, South Dakota and West Virginia. The average write-off in that particular California district was $35,000, compared with an $9,500 average nationally.

Florida taxes, and the deductions stemming from them, rank high but not among the nation’s loftiest. Similar to the California example above, residents of a single congressional district on Long Island wrote off more in property tax deductions than all the homeowners from six states and the District of Columbia. Owners in New York’s 3rd District took an estimated $1.25 billion in deductions, more than the $1.2 billion claimed during the same period by people in Hawaii, Wyoming, Arkansas, Delaware, North Dakota, South Dakota and D.C.

The average New Jersey homeowner claimed $6,005 in real estate tax write-offs, more than five times the average deduction by residents of Hawaii, who claimed $1,126. New Yorkers claimed an average $5,181 in property tax deductions, followed by the residents of New Hampshire at $4,830, Illinois at $4,129, and Vermont with $3,845. The average California homeowner wrote off $14,217 in mortgage interest taxes, while the average homeowner in Oklahoma wrote off $5,710.

The study toted up the mortgage interest tax deduction savings and local real estate taxes for all 435 U.S. congressional districts and 50 states, the purpose of the project being to show representatives just how economically significant current homeowner-related tax write-offs are to their constituents. Although currently there are no legislative threats to the mortgage interest tax and real estate benefits, their size and geographic distribution make them perennially tempting targets for budget balancers seeking to bulk up the federal tax rolls.

The mortgage interest write-off, available to owners with primary Florida home loan balances of up to $1 million and $100,000 in home equity debt, is expected to cost the U.S. Treasury close to $100 billion a year by 2009. If the deductions were capped at a level below today’s $1.1 million - say at $300,000 or $400,000 — the federal deficit could be reduced by tens of billions a year.

A low cap would also lessen the system’s disparities between the tax benefits received by residents of states with high housing costs and big home loans compared with the benefits received by residents of lower-cost jurisdictions. But defenders of the current system (the National Association of Realtors among them) argue that the disproportionate write-offs are attributable to the indisputably different realities of owning a home from one state to the next.

Proponets of the system assert that every housing market is different, too much so to alter the code. For example, California, New Jersey and New York residents get to deduct more for local property taxes and mortgages because they pay higher taxes and monthly loan payments than people who live elsewhere. Their governments rely more heavily on tax revenues to run schools and services, and they pay a lot more in terms of median home prices than most of the U.S.

Bottom line: If you’re not taking big deductions, that’s probably because you’re not being eaten alive by huge monthly Florida home loan payments and heavy property taxes. So it could be worse.

Naturally, there are numerous reasons for purchasing your first home. Among the many comforts, however, buyers often cite tax benefits as a reason to own a house. Before you agree on terms for that Florida home loan, however, allow us to focus on five possible misconceptions individuals have about the U.S. tax code.

1. My Florida home mortgage interest will reduce my tax bill
This isn’t true for ALL homeowners. Moreover, such a tax break won’t work forever.

To take tax advantage of your Florida home loan interest rate, you must itemize and come up with a total that exceeds your standard amount. On 2006 tax returns, the standard deductions will be $5,150 for single taxpayers, $7,550 for head of household filers and $10,300 for married couples who file jointly. These amounts increase a bit each year to account for inflation.

“Given home prices these days, most owners are itemizing,” says Mark Luscombe, principal tax analyst with CCH Inc. of Riverwoods, Ill. By the time they count mortgage interest, property taxes and other nonhome deductions, such as state taxes and charitable gifts, their itemized totals easily surpass their allowable standard deductions.

But this isn’t the case for everyone.

Taxpayers who find a Florida home loan late in the year, for instance, might find the standard deduction is more beneficial, at least initially, says Kathy Tollaksen, a CPA at Sikich LLP in Aurora, Ill. In these cases, where you make only a few payments in a tax year, depending on your loan you might not pay much interest, at least not enough to exceed standard amounts.

Timing also could reduce or eliminate other home-related tax breaks.

The benefit of mortgage interest also could be a myth if you’ve lived in your home for a long time. In this case, you likely are paying more toward your Florida mortgage loan’s principal instead of interest. So homeowners at the end of a loan term don’t get much, if any, from this tax break.
2. All costs related to my home are deductible
This is simply false.

Some buyers think they can write off everything connected with the house,” says Tollaksen. “Not so. Association fees and property insurance costs are not deductible.”

Neither is private mortgage insurance, which your Florida home loan lender probably required if your down payment was less than 20 percent; nor can you deduct basic maintenance, repair or home improvement costs either.

However, you still need to keep track of these expenses.

“If you convert the home to rental property or sell it,” she says, “these costs will affect the property’s tax basis.”
3. I must use money from my home sale to buy another residence
This used to be the only way to get around a tax bill on a home sale. Even then, you were only able to defer taxes by purchasing a new residence of equal or greater value with the profits from your other house. When you sold your final house, you’d owe those long-deferred taxes you had rolled over throughout the years. Home sellers age 55 or older - baby boomers - were allowed a once-in-a-lifetime tax exemption of up to $125,000 in sale profit.

But on May 7, 1997, home-sale tax law changed. Still, almost a decade later, many homeowners are confused about the tax implications of selling.

Don’t worry. Most taxpayers still get a nice break. Now, if you live in the house for two of the five years before you sell, the IRS won’t collect tax on sale profit of up to $250,000 if you’re single or $500,000 if you and your spouse file a joint return.
4. Putting my child on my home’s title is a smart tax move
Worries about taxes on a residence sometimes lead homeowners to fall for this title myth. It’s a particularly tricky one, because it combines confusion about residential taxes with the even more complex estate-tax area.

“Sometimes we’ll hear about taxpayers who, in doing some quick back-of-the-envelope estate planning, decide to put their home in the children’s names,” says Tollaksen. “The thinking is: My son or daughter won’t have to worry about this when I die.”

The goals: Avoid probate, keep the home in the family and get the property out of the parent’s estate for those tax purposes. Such a move, however, could produce other tax problems for your children.

Unless the child moves into the newly deeded house with the parent and lives there long enough (two of the previous five years) to make the house the child’s main residence, too, says Tollaksen, the son or daughter won’t get the $250,000 or $500,000 residential tax break when the child later decides to sell. Without establishing primary residency in the house, either before or after the parent passes away, the child’s ownership is viewed as an investment property.
5. If I take a capital loss when I sell my home, I can write it off
This myth, like No. 2, was probably started by wishful homeowners. We’re sorry to say it’s just as wrong.

It is true that Florida real estate, like any other asset, has the potential to go down as well as up in value. But unlike most of those other holdings, you cannot write off any loss you suffer if you must sell your main residence for less than what you paid on your Florida home mortage loan.

That’s because your residence, under tax law, is considered personal property.

“When you sell your home for a loss, it’s not like other capital items,” says Scharin. “You don’t get to deduct personal property that you sell for a loss.”

You do, however, have to pay tax on gains you make when selling personal property. This is all a lot to take in - but it’s important. As you consider a Florida home loan, be aware of all tax deduction truths and myths.

Those seeking their first Florida home loan often have one thing in common: they need help coming up with the money. Some individuals turn to banks for a loan, but many look to their family for financial assistance.

If you fall into the second category, the following exchange could serve as an important lesson when it comes to real estate tax deductions:

DEAR BOB: Last year, my wife and I loaned our daughter and son-in-law the money they needed to buy their first home. We weren’t earning much on the money and they offered to pay us 5 percent interest. It was a good deal for them and a good deal for us.

They faithfully pay us the monthly interest and principal. However, when they had their income taxes prepared, their tax adviser told them that the approximately $32,000 of interest they paid us in 2005 is not tax-deductible because it is an unsecured loan, which is not recorded against their title. Please tell us this isn’t true. — Gregg G.

DEAR GREGG: Their tax adviser is correct. For your daughter and son-in-law to deduct the interest payments paid to you as itemized home mortgage interest, the loan obligation must be secured by a recorded mortgage or deed of trust against their home.

Although you and your wife must report on your tax returns the interest income received, the borrowers are not entitled to deduct it as home mortgage interest because the loan isn’t secured by their residence. However, this can be corrected for 2006 by their signing and recording a mortgage or deed of trust to secure the promissory note they gave to you.

As you consider a Florida home loan, keep this story in mind. Fortunately, there are new tax incentives for current home owners and builders.

The following questions and answers were taken from a Q & A session with Robert J. Bruss, a licensed real estate broker and industry expert who responds to consumer housing inquiries from across the country in a weekly column.

~~~~~~~~~~~~~~~~~~~~~~~~~

Q: I own two houses in trust. One is in West Virginia. When my husband moved out of that house, he signed the papers to transfer title to me. I now live there for several months each year, but it is not my permanent residence. I can’t claim a homestead exemption there because I claim a Florida homestead exemption. Can I use the tax-free, $250,000 exemption on the W.V. house if I lived there 24 months in the past five years?

A: I presume by holding title “in trust,” you mean in a revocable living trust. If title to the residences is held in any other kind of trust, such as an irrevocable trust, you’re not eligible for the principal residence sale tax benefits of Internal Revenue Code 121.

For the sale of the West Virginia house to qualify for the primary residence tax exemption up to $250,000, you must have owned and occupied it as your principal residence an “aggregate” 24 of the 60 months before its sale. The 24 months need not be continuous. However, it must truly be your principal residence during your 24-month occupancy time. If audited by the IRS, you must be able to prove residence with items such as a local bank account, car registration, driver’s license, tax returns filed from that address, etc. Especially since you are getting the Florida property tax break, it sounds like the West Virginia house doesn’t qualify for IRC 121 principal residence real estate tax savings.

Q: I recently purchased a condominium. I received the condo association documents, along with an application. Since I own two other condos and never had to fill out any application to purchase one before, this came as a surprise to me. This is not a cooperative apartment. I feel some of the questions are intrusive, regarding my last occupation, income, and net worth. Then it is up to the board whether to accept my application. I feel this is the business of my mortgage lender, not the condo board who are my future neighbors. Should the real estate agent have warned me about this?

A: Yes, the agent should have clearly shown on the MLS (multiple listing service) information that buyers are subject to approval by the condo association board of directors. Like you, I have never encountered a situation like this, but I have heard of a few associations that hold inquisitions of new condo buyers. I would be hesitant to buy into that complex, as it could make the unit very difficult to resell — when a purchase is subject to approval by the board of directors, there doesn’t have to be a reason for rejecting an applicant.

Q: I am inheriting my late mother’s home, which is currently in probate. Is it best to wait for probate to finish to assume title? Are there any tax consequences to claiming title before or after probate is completed?

A: You can’t receive marketable title until the Probate Court approves the title transfer to you. If there are income or estate taxes to be paid for the decedent, those taxes must be paid by the estate before assets can be distributed to heirs. I recommend property owners transfer title to their revocable living trusts so, after their passing, assets can be promptly distributed without probate costs and delays. Presumably your mother died without a living trust or will, so your state’s probate proceedings are required before transfer of ownership occurs.

April 15 is approaching. It’s time to start thinking about tax incentives and how to save money on your home purchase.

Fortunately, Uncle Sam has some nice perks for homeowners. As the big date gets closer, start contemplating the ways you can make deductions for repairs, your mortgage interest or even take the famous home-office deduction.

A recent section of CNN Money discussed a few tipcs on how to get the most out of your home at tax time.

1. Deduct that mortgage interest
Deducting your mortgage interest is one of the biggest freebies the goverment. But keep in mind that the longer you live in your home, the less valuable your deduction will be. That’s because most mortgages front-load the interest payments, meaning that as the years go by, your monthly payment will go more towards paying down the principle, and less towards interest on the loan.

You could also consider paying off your mortgage early, but read the fine print because you may get hit with prepayment penalty fees. But don’t worry. At least you can deduct these penalties from your taxes.

2. Keep your receipts
If you have made home improvements or repairs, make sure you keep all of those receipts. When you sell your home, you can use these expenses to reduce the tax you pay on the profit. That profit is called a capital gain. The less profit you show, the less tax you’ll have to pay.

3. Relocation compensation
Whether you rent or buy, if you have to relocate because of your job, whether it’s your first job, a new job or the same job, you may qualify for a moving deduction. This can be a pretty big tax deduction, especially if you made a major cross-country move to take a new job.

You will qualify for this deduction if your new job is at least 50 miles away from where you live. You’ll be able to deduct expenses like your moving van, moving services, the cost of moving your car or your pets, the use of storage facilities and any hotel rooms you had to stay in while making the move.

4. Get damage deductions
If your home sustained damage because of a tornado, a hurricane or theft and you were not compensated by insurance, you may be able to get a deduction on your taxes.

There are some rules. The cost of un-reimbursed damage must be more than 10 percent of your adjusted gross income. And to make matters more complicated, you need to subtract $100 from that un-reimbursed damage before you do that calculation.

These rules we just outlined DON’T apply to victims of Hurricane Katrina. Anything that wasn’t covered by insurance is fully deductible. If your area is declared a presidential disaster area, you have the right to amend last year’s tax return and claim this year’s loss. This will help you get a refund more quickly.

Make your Florida home loan work for you, people. See how much you can save if you qualify for any of these deductions.

New federal tax incentives should benefit current home owners and builders. Thanks to the Tax Incentives Assistance Project (TIAP), interested individuals can discover what sort of new tax credits will cover energy-saving technologies and practices. The guidelines cover existing homes, new homes, and new manufactured homes.

TIAP is a nonprofit effort by a coalition of more than a dozen organizations, led by the American Council for an Energy-Efficiency Economy (ACEEE) and the Alliance to Save Energy, to inform consumers and businesses about federal tax incentives enacted in the Energy Policy Act of 2005.

“This guidance clarifies what measures are eligible for tax incentives and provides clear direction to taxpayers on what they need to do to qualify for the tax incentives,” said ACEEE Executive Director Steven Nadel, who coordinates the overall TIAP effort.

“We commend the IRS for issuing guidelines less than two months into the two-year window for claiming the energy-efficiency tax credits,” said Alliance to Save Energy President Kateri Callahan. “Having this guidance so soon enables consumers to purchase and install insulation, Energy Star-labeled windows and other energy- and money-saving home improvements in time to lower both current winter energy costs and their 2006 federal taxes.”

For existing homes, homeowners can claim credits totaling up to $500 for any combination of eligible measures installed in their primary residences. Home builders are eligible for tax incentives of $2,000 for new homes.

To qualify, homes must be designed to use 50 percent less energy for heating and cooling than a reference home design that meets the standards of Section 404 of the 2004 International Energy Conservation Code (IECC). The rules set out the procedures for documenting and certifying the home’s energy performance and rely heavily on home energy rating procedures developed by the national Residential Energy Services Network (RESNET).

For manufactured new homes (those governed by federal construction standards), the new energy law sets forth a slightly different set of qualification criteria, allowing builders of theses homes to qualify for either a $2,000 credit, using procedures similar to those applicable to new homes as described above, or of a $1,000 credit if homes are documented to save 30 percent of the heating and cooling energy compared to a reference home that meets the standards of Section 404 of the 2004 IECC.

To see if you can receieve these tax benefits on your Florida home loan, consult with experts in the field.

In November, a tax reform panel appointed by President Bush submitted a report that recommended putting limits on the mortgage interest tax break in a couple of ways.

Answering a question from a home builder during a question-and-answer forum in Florida, however, the president said: “I don’t think you have to worry about the mortgage deduction not being a part of the income-tax law.”

The panel’s proposal including the following:

1. Lowering the mortgage-interest cap, which is the amount of a home loan on which owners would receive a tax break for interest paid. The panel suggested lowering the cap from $1 million to the average regional home price, in the range of $227,000 to $412,000.
2. Converting the mortgage interest deduction to a tax credit equal to 15 percent of interest paid on mortgages up to the cap.

A credit is a dollar-for-dollar reduction of the taxes you owe, while a deduction only reduces your taxable income by a percentage equal to your top tax rate. For example, a $100 credit reduces your taxes by $100, but a $100 deduction reduces your taxes by $25 if you’re in the 25 percent bracket.

Deductions benefit high-income taxpayers the most and are limited to those taxpayers who itemize on their federal tax returns. A credit would be available to all homeowners.

If the panel’s mortgage proposals were ever adopted, the bigger your Florida home loan and the higher your tax bracket, the more likely it is that you’d see less of a tax break than you would under the current system.

Some Republicans have said some of the recommendations from the panel, such as the one on mortgage interest, might generate too much controversy, especially in the current Congressional election year.

Referring to concerns the builder had raised about interest rates, Bush said, “You’ll be happy to hear I don’t set interest rates.”

That job, of course, falls to new Federal Reserve Chairman Ben Bernanke. He has already hinted that raising mortgage rates may be necessary.

If you’re unclear about whether or not you’re owed funds from a FHA Florida home loan, don’t bother talking to a private company over the matter. There are simple steps you can take on your own to determine if you have a refund coming your way.

The U.S. Department of Housing and Urban Development, which oversees all FHA loans, increased its research efforts three years ago to locate approximately 348,000 homeowners owed $250 million in FHA mortgage insurance refunds. However, some homeowners could not be found, typically because they had moved and the new mailing address was not in HUD’s records.

Details of a FHA Florida home loan

When homeowners pay off their FHA-insured loan within five years, a portion of the mortgage insurance upfront premium is returned. It works much like a homeowner’s fire insurance policy that’s canceled before the term expires. For example, if you pay $600 to insure your home for a year and move after eight months, a portion of the $600 would be refunded.

If you believe you are due for a refund, try to dig out your old FHA loan number and then check online or by phone. Your proper name may not be enough, especially if it’s a common one.

Lenders require mortgage insurance when borrowers apply for more than 80 percent of the purchase price of the home. It insures the investor (lender) in case the borrower defaults on loan payments. Therefor, if you sold your home and the new owner assumed the loan, you are not eligible for a refund. That’s because there is still a risk of default. The insurance follows the loan and not the initial borrower.

On older FHA loans, mortgage insurance was part of the deal and had to be paid regardless of the equity position of the borrower. Mortgage insurance on newer FHA loans - those placed after Jan. 1, 2001 - can be dropped when equity reaches 22 percent of the original appraised value and the borrower meets other guidelines.

The bottom line is that you may be owed a decent chunk of change. Take a close look at your Floirda home loan. If you feel as though a refund is in order, don’t hesitate to act on it.