Tax Strategies for Homeowners

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

Speaking of updating that 1970s kitchen and the banana-yellow linoleum, if you decide to take out a home equity loan to remodel, there are a few mortgage rules you should know.

You can deduct the interest on home mortgage loans up to $1 million. So if your mortgage is $1.2 million, you can only deduct the interest on the first $1 million.

But the home equity world is different. Typically, you can only deduct interest on home equity loans up to $100,000. That's because many folks use home equity loans to buy cars, pay for college or finance that trip around the world.

The IRS has to set some limitation on pleasurable uses -- it doesn't want you having too much fun. But if you can prove that a loan is used strictly for home improvements, the $100,000 limit does not apply. In that case, your loan can max out at $1 million, and the interest will still be deductible.