Taking It With You

Out With the Old

Considering the current crazy housing market, we'll assume you were able to sell your old house for a substantial gain. Good for you. Even better, you may not have to pay tax on that gain if you meet a few (more!) tax rules.

Under the current law, if you owned and lived in your home as your principal residence for two of the five years prior to the sale, you would not owe tax on the first $250,000 in gain as a single person, or $500,000 as a married couple.

To figure out that gain, you must subtract your basis from the selling price. Your basis is your purchase price of the home plus the cost of any major home improvements. Repairs don't count.

That means if you fixed old windows or a leaky roof, you can't include those costs. But if you put in a new patio or beefed up the landscaping, those expenses increase the value of your home and should be added to your basis. Remember, the higher your basis, the lower your gain. So start tallying those home improvements.

In With the New

With all the innovative mortgage products out there these days, don't be surprised if you're asked to pay points on your new mortgage. Points are just extra charges you can opt to pay up front to get a lower interest rate on your mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount or discount points.

You can deduct all the points you paid on Schedule A -- Itemized Deductions in the year you got the loan. But if you happen to be in a situation in which it would be more beneficial to hold off on that deduction, you can elect to amortize those points over the life of the loan. That means you deduct a piece each year. So if you paid $1,000 in points on a 10-year loan, you can deduct $100 each year.