Homeownership offers a lot of tax advantages that just aren’t an option if you’re a renter. But, as with most good things, there are rules and guidelines to these deductions – and being “deduction-savvy” can be a bit of a learning process. Here are some of the most common deductions to take advantage of next time you purchase a home, or when April 15 rolls around:

All about points

When most people buy their first house, they generally have no idea what points are – unless they work in finance or have a friend who’s a Texas REALTOR®. But the points concept is pretty simple. Mortgages have lots of costs, and one of those costs is the “loan origination fee.” The loan origination fee is usually a percentage of the loan amount, and those are called points.

Homeowners can deduct points used to get a mortgage when buying a home. For example, one “point” on a $150,000 loan would be $1,500. One-and-a-half points on the same loan amount would be $2,250. On VA and FHA loans, points are usually broken down into two categories: loan origination fee (usually one point) and discount points (also a percentage of the loan balance). Both are deductible. Keep in mind, too, that the loan origination fee must be listed as points for it to be tax deductible.

When buying a home, points are deductible in the year they are paid, providing they meet certain conditions. The main conditions are that the mortgage is secured by the home you live in most of the time and that you used this mortgage to either purchase or build your home.

But there are other rules, too. Your lender cannot inflate the points to include other items you would normally be charged – such as an appraisal fee, title insurance fee, property taxes, settlement fees, and other charges.

The money you put into the transaction must be more than the amount charged in points. So, if your points were $3,000, but you only had to put in $2,000 to close, the IRS might be a little suspicious. Although a lender can technically do this, you wouldn’t be allowed to deduct the points.

The only other major condition when you buy is that the points must be clearly stated on the HUD Settlement Statement. This is one of the many pieces of paper you’ll receive after closing that spells out in black and white all the costs involved in buying the home.

Sometimes the buyer negotiates for the seller to pay some closing costs, including points. If the seller pays the buyer’s points, the IRS will allow the buyer to deduct them as an expense on a federal tax return. However, the seller can’t deduct them, too. Paying the buyer’s closing costs, including points, reduces the net gain on the home for purposes in calculating capital gains taxes, which are usually deferred.

If you make too much money, there are limits on what you can deduct, so definitely make an appointment with your accountant to make sure you’re on the right track. Usually, if your adjusted gross income is more than a certain amount, there’s a limit on what you can deduct. And for married couples filing separately, the figure is half that.

Interest and taxes

You can also deduct pre-paid interest and pro-rated property taxes. Here’s how it works. When you buy a home, you can close on any day of the month, but most lenders want their payment by the first of the month. So, if you close on the 20th, you “pre-pay” 10 days of interest as part of your closing costs. The 10 days of interest pays you up to the end of the month. Your first mortgage payment will not be on the first of the following month, but the month after that. Unlike renting, where you pay in advance, mortgages are paid in arrears.

The same situation applies to property taxes. The seller’s last property tax payment may have covered part of the time where you will actually be the owner of the home. So, the settlement agent will figure how much of that last bill you should pay and charge it to you as a closing cost called “pro-rated property taxes” – and that’s also deductible.

Buying, selling, and capital gains

The expenses and profits of buying and selling your home can substantially affect your federal income tax, so if you don’t have an accountant, now’s a good time to get one. The Taxpayer Relief Act of 1997 allows homeowners to exclude up to $250,000 of the gain ($500,000 for married couples filing a joint return) from the sale of a principal residence occurring after May 6, 1997.

Of course, there are conditions. You must have owned and used the house as a principal residence for a combined period of at least two years out of the five years before the sale. If you haven’t owned the house as your principal residence for two years, you may be able to take a prorated amount of the exclusion under certain circumstances, such as a change in health, employment or military assignment. And, this exclusion is allowed each time you sell a home, but not more frequently than every two years or for more than $250,000 ($500,000 for married couples) for each sale.

Buying a home in Texas offers many more benefits than simply a roof over your head and a place to settle in, so knowing how you can save money on taxes is a good thing. Check with your accountant. Chances are, you’ll likely have a smile on your face when April 15 arrives.