Mortgage interest deduction: The main benefit of owning real estate comes from the ability to deduct the interest on a home mortgage or a home equity loan. To be eligible for this income tax deduction, the loan must be for your primary residence or a vacation home that is not rented out to others. The deduction must be claimed as an itemized deduction on Schedule A of your federal tax return.
Property tax deduction: Real estate taxes paid to any state or local governments are also deductible on your federal return. Generally, the taxes must be based on the assessed value of the property and must be charged uniformly for all properties under the jurisdiction of the taxing authority.
Capital gains exemption: When you sell your home, you can exclude up to $250,000 ($500,000 for married couples) from any realized capital gains. To qualify, you must meet certain criteria: among other requirements, you must have resided in the home for at least two of the five years before the sale and not have excluded gain from the sale of another home two years prior to the sale.
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