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Time to buy a home?
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October 8, 2001: 7:00 a.m. ET
Buying now could actually be a conservative move.
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NEW YORK (CNNmoney) - Stock market turmoil, looming layoffs and the threat of war have given U.S. consumers pause. It hardly seems the time to cough up a down payment for a new home.
Certainly if you're worried about your job, this isn't the time to exhaust your emergency savings on a new investment. But if your employment picture is steady, it's worth remembering that real estate has proven to be a much more stable investment than the stock market over the past two years. The cooling economy has made home sellers a little more willing to deal in what had been torrid markets, yet mortgage rates are near historic lows, which should keep values from plummeting. Plus, with the help of a tax break or two, buying now can put a few bucks into your wallet in these lean times.
"[Buyers] will see an immediate increase in their take-home pay when they get their W-4s adjusted," said Tony Bardi, a real estate agent in Portland, Ore.
A gift from Uncle Sam
The primary savings on residential real estate come from tax deductions on the mortgage interest and property taxes you pay, both of which are 100 percent deductible.
Say, for example, the total amount you pay on mortgage interest and taxes adds up to $10,000 in a year and you are in the 30 percent tax bracket. Your taxable income will decrease by $10,000, and you'll pay $3,000 less in taxes than you would as a non-homeowner.
That's $250 more per month in your pocket.
Don't forget, too, that lenders frontload mortgage interest. In other words, the bulk of your monthly payments for the first 10 years goes to interest rather than equity. That portion becomes your write-off, giving you the biggest tax break when you need it most - after shelling out cash for closing costs, a down payment and new furniture. (There is a limit to the government's generosity, however: If you buy a home worth more than $1 million, you can deduct the interest only on the first million you pay.)
How much house can you afford?
Bardi offers another tip: Boost your tax withholdings after purchasing a home. Depending on the size or your mortgage and your annual pay, those withholdings can add up fast.
Bonus: Tapping your equity
Cindy Hockenberry, a spokeswoman for the National Association of Tax Practitioners, added there are other ways real estate can help boost deductions.
Home owners, for example, are eligible for home equity loans, and interest payments on such loans of $100,000 or less are tax deductible.
The money can be used for whatever you like, from buying of an expensive new sports car to paying off high-interest credit card debt. But there is one major caveat: Taxpayers who are subject to the alternative minimum tax (AMT) generally cannot deduct home equity interest unless the money is used for home improvements.
Find a mortgage.
Congress has projected that the number of taxpayers who are subject to the AMT could grow to 13 million from 1.3 million by the end of the decade.
Remember that anyone who borrows from the equity in their home must be careful to repay their debt. Failure to do so could result in foreclosure on their home.
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 THE RULES
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To exclude profit from the sale of your home, the IRS requires that you own and occupy your home for two out of the last five years.
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Another tax advantage: Thanks to legislative changes in 1997, homeowners who sell their primary residence after two years pay no capital gains tax on the profit. You need not reinvest those dollars into a larger property, as once was the case. But the exclusion disappears for single taxpayers who make $250,000 or more on the sale of their home, and for married couples filing jointly who make $500,000 or more.
"For the most part, real estate appreciates," Hockenberry said. "You have to think of it as being your investment and the equity you get out of it is money in your pocket."
More than the standard?
One final consideration is whether the mortgage interest and property taxes tally up to more than the standard deduction. If they, along with any other itemized deductions you can take, don't add up to at least the standard deduction you won't see any additional benefit.
Compare real estate agents
Over the last few years the standard deduction has been inching upward. For the 2001 tax year, the standard deduction for married couples filing jointly will go up to $7,600. By 2005, that same deduction will ratchet up to $9,100.
To determine whether you should take the standard deduction or itemize, add the range of your possible write-offs including mortgage interest, property taxes, charitable contributions and home office deductions to determine if they exceed the standard set by the government.
You may need that extra cash from your home-related deductions. Remember, as the owner you no longer get to call on the landlord to fix a stubborn garbage disposal or patch up a leaky pipe.
Now the responsibility, and the bill from the plumber, is yours. 
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