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Your home can provide more tax relief than any other acquisition, thanks, in part, to new federal laws designed to help in the recessionary economy.

Building on a host of existing tax benefits for homeowners, new tax breaks help you save money when buying, owning or selling a home.

• Mortgage Forgiveness of Debt Tax Break:  When a lender allows the homeowner to forego repayment of principal and or interest the borrower owes and discharges the debt.  The amount of debt that can be excluded is limited to $2 million and the exclusion is only available for loans that were used to buy, build or substantially improve a principal residence.  Vacation homes, investment properties and other second homes don't qualify. The is a federal tax break that allows borrowers to avoid foreclosure, and related taxes, when they do a "short sale."  Previously, the forgiven portion could be considered income and taxed as such. The Mortgage Forgiveness Debt Relief Act of 2007, effective through 2010, removes federal taxes from forgiven debt for qualifying taxpayers.
• Mortgage Insurance Deduction:  The relief act also extends federal tax relief for qualified home owners who pay mortgage insurance. Qualified borrowers can deduct the full amount of their private or government mortgage insurance if their insured mortgage originates between 2007 and 2010.
• First Time Homebuyer Tax Credit of $8000:  This deal is for buyers or couples who have never owned a home or who haven't owned a home in the past three years. The tax credit does not have to be repaid. 
• Standard Deduction for Property Taxes:  Homeowners may claim an additional standard deduction for property tax if they do not itemize deductions. The additional amount is limited to $500 or $1,000 for joint filers. The amount is claimed as an additional amount on top of their standard deduction. The deduction is valid for the 2008 tax year only. 
• Interest:  Interest that is paid as part of a mortgage is also deductible and will remain so at the present time.
• Prorated Capital Gains Exclusion:  Under current law married homeowners can exclude from taxation up to $500,000 in gains from a home sale, provided the property was the primary residence for two out of the previous five years. The maximum exclusion for a single person is $250,000.  Vacation and rental property owners can legally double dip the exclusion by first selling their primary residence and capturing the tax-free gain. Then, after moving into the second residence for two years to qualify it as their primary residence, they are able to cash in again on the tax-free gain after selling the second home.  As of January 1, 2009 capital gains will no longer exclude the gain for the time the home served as a vacation or rental property. The exclusion will be pro-rated and will only be eligible for the time when the home served as a primary residence.  Homeowners who move into the vacation home before the end of 2008 will still be eligible for the benefits of the old law.  

Whenever it comes to taxes, be sure and see a professional.

Deduction:  A tax "deduction" reduces your taxable income. Less income to tax means less taxes to pay. For example, a $100 tax deduction reduces your $50,000 taxable income to $49,900.

Credit:  A tax "credit" is a dollar-for-dollar reduction in your actual taxes due. A $100 tax credit reduces your $1,000 tax bill to $900.