bathroom or finishing a basement substantially increases the property’s functionality and appeal, while potentially boosting its value. Tax advantages of homeownership. There are significant tax benefits associated with buying a house, both at the time of purchase and for the duration of time you own the home: • Homestead exemption. Many states exempt owner- occupied homes (homesteads) from a portion of the property tax amount that would normally accrue. For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, so a $200,000 home in New Orleans is taxed as if it were worth $125,000. • Federal tax deductions. When you’re looking to purchase a home, it’s important to understand what can and can't be deducted on your tax return. Real estate taxes and interest paid on your mortgage can be deducted if you itemize your federal income taxes, which can reduce your income tax burden. Many homebuyers, unfortunately, overlook the effect of mortgage interest on their federal income tax payments. Mortgage interest can be a powerful financial planning tool. Calculate the amount of mortgage interest deductions you are eligible for and include that in your annual financial planning. Then, make a point of checking Internal Revenue Service (IRS) Form 1098, which you’ll receive from your lender at the end of the year. This form shows the amount of mortgage interest that you’ve paid. (Please consult with your tax accountant.) Mortgage rates. Interest rates vary through the years. Several years ago, interest rates were higher, and it was more expensive 18
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