A benefit of purchasing a home is that the IRS and most states will allow tax deductions for the interest you pay on your mortgage and property taxes. These are listed as  itemized deductions on the IRS Form 1040 when you file your Federal Tax return. Home equity loan interest is also tax deductible.

Usually, the tax collector's office for whatever county you are living in will send you a bill for your property taxes, either once or twice per year. These property taxes are based on your property's value, and they are roughly 1.5% of the purchase price of your home, per year. Quite often, if you put less than a 20% down payment on your home, you will be required to pay your property taxes monthly as part of your mortgage payment, and the funds go into impound accounts.

When you sell a home, you generally receive more money than you originally paid for it. Fortunately, the IRS only requires you to pay taxes on the difference between what you paid for the house and what you sold it for, and they do not include the amount of appreciation that came from home improvements that you made at your expense.
According to the Taxpayers Relief Act of 1997, taxes do not have to be paid on real estate profits of up to $250,000 for a single person and up to $500,000 for a couple. This tax exclusion does have certain stipulations, though. For one thing, the house you have sold must have been your primary residence for at least two of the past five years.
There are no age restrictions now on the tax exclusion, as there were formerly.

You are not immediately obligated to report the sale of your house to the IRS because the firm handling the financial details of the sale will file a 1099-S form, one copy of which you will receive, and one copy will go directly to the IRS. When it is time to complete your Federal Tax return, you will be required to complete a "Sale of Your Home" form (Form 2119).

Filling out Form 2119 is a bit complicated because you need to calculate the expenses of selling your house and also the cost basis of your house. Cost basis is the amount you originally spent on the house plus the money you spent on improvements.

Allowable IRS deductions on the sale of your home include real estate agent's commissions, attorney's fees, title and settlement fees, recording fees, advertising expenses, and buyer's loan fees. Any questions you have regarding allowable deductions should be directed toward an accountant or attorney.