Deducting Your Dwelling

Keep in mind that $1 million is an aggregate maximum. While you can also deduct the mortgage interest on a second home, that $1 million cap applies to both loans.

Thankfully, your real estate tax deduction is unlimited. So if you pay taxes on two homes, deduct away.

That's about all the 2005 tax benefits you're going to find from your purchase. But now you need to keep track of your basis, the starting point in figuring later gains and losses. Remember, when you decide to sell (I know, the boxes aren't even unpacked), your gain is the difference between the selling price and the basis. So the higher your basis, the smaller your capital gain. And you need to keep that gain within the exclusion limits to avoid a tax hit.

So tally your basis. Start with your purchase price and add your closing costs, including legal fees and costs for surveys and titles.

And don't forget about that mansion tax some states impose. For instance, in New York, if the purchase price of the home is $1 million or more, the buyer must pay a "mansion tax" equaling 1% of the total price. Be sure to add that to your basis as well.

Then keep track of any big improvements. If you add a second level to a ranch, keep all that paperwork. If you update the kitchen, add on those costs. Same goes for new windows and updated bathrooms. Check out the IRS Publication 936 - Home Mortgage Interest Deduction for more details.

Bonus Points

You may have paid points -- a.k.a. loan-origination fees or discount points -- when you got your mortgage. Points are extra charges paid upfront to get a lower interest rate on your mortgage. If you paid points in 2005, deduct them on your Schedule A.