Homeowners
There are many tax advantages to owning a home. The major tax advantages include:
1) Deducting some of your closing costs such as loan origination fees and buyer's points
2) Deducting your mortgage interest expenses
3) Deductibility of property taxes paid
4) Home equity loan interest expense deduction if you take out a loan or second mortgage that is secured by your home as collateral.
5) Excluding from tax up to $500,000 (married) or $250,000 (single) of capital gains when you sell your home
6) Deducting potential home office expenses
To ensure you receive full advantage of these tax breaks, you must keep thorough records relating to the purchase of your home, records of qualifying home business expenses and home improvements, tax returns from all years in which you bought and sold homes, records relating to the sale of your home and all interest and tax statements.
Buying a Home
It often helps to understand how the bank looks at your ability to buy. They look at your total debt for the home, auto loans, credit card balances and other loans to make sure you can afford the home. Banks believe you can typically afford a home valued at about 2 1/2 times your annual income. Typical down payments are 10% or more of the price of the home (special loan programs can reduce this to 5% or less). Also plan on incurring as much as 1% to 3% of the mortgage loan value in closing costs.
When You Sell 
You may be able to exempt up to $500,000 for married couples, $250,000 if you are single, of your gain when selling your house. This tax free gain went into effect for home sales after May 7, 1997 and can be used once evey two years for your primary residence. To compute this gain you must subtract your home basis (purchase price of your home plus any home improvements) from the adjusted selling price.
Under the old law you qualified for a gains rollover as long as you brought and lived in your next house within two years and the price of your next home was at least as much as the adjusted selling price of the home you sold. These gain rollovers must still be taken into account when you sell.
Home Improvements
All qualified home improvements can be added to your home's cost (basis), thereby reducing the taxable gain when you sell. Improvements that add to our home's basis include: adding a room, finishing an unfinished basement adding a new roof or paving your driveway. However, if you think you no longer need to keep track of improvements be careful. It is still recommended that you keep records of any improvements to your home. This is especially true if:
1) You plan to have a home office
2) Your house is located in an area with rapid appreciation
3) You plan to stay in your home for a long time
4) You think the tax laws will change
5) You rent out your home in the future
6) You are planning major improvements
7) Your home is no longer used as your primary residence
Types of home repair/maintenance you many not add to your home basis are general repairs that simply keep the house in its original condition such as painting, wallpapering, fixing leaks and plastering. These expenses can be used as an improvement if they are done in conjunction with remodeling or a restoration project.
Home Office
A home office deduction is available to you if:
1) It is the principal place of your business
2) It is a place where your patients, clients or customers meet with you in the normal course of business
3) Is is an area of the home that is used exclusively and on a regular basis for business
4) It is used as a convenience to your employer
5) You are using an area in your home as the sole place for storing products used in your business
6) You use a place in your home to conduct administrative or management activities of your trade or business, provided there is no other fixed location for such activities.
You are limited to home office deductions equal to but not greater than the gross income of the business less non-home-use business activity expenses. The allocation of the home use expenses on a proportionate share basis cannot create or increase a net loss in the business.
Vacation Home Rental 
Your vacation home is another potential source for tax advantages if you follow the rules below:
1) If you don't rent out your vacation home you can deduct mortgage interest and real estate taxes
2) If you rent out your vacation home for 14 days or less you can deduct the mortgage interest and the real estate taxes
3) If you rent out the home 100% of the time and there is no personal use, generally you may deduct interest, taxes, all operating expenses, depreciation and rental losses up to $25,000.
4) If you rent out your vacation home for more than 14 days, the rules regarding personal use and what you can deduct are very complex. Often times small changes in use can make big differences at tax time.