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Reason #1: tax advantages equal an increase in your paycheck.

There are many advantages to using a VA home loan. They include: no money down, no private mortgage insurance, no buyer paid closing costs (most cases), the ability to use BAH as an investment, a government guaranteed home loan, a certificate of value and much much more.

There are many advantages to home ownership. Among those include; pride of ownership, home equity, personal autonomy, long term investment strategy, and the focus of this article; tax incentives. Tax incentives are among the most overlooked advantages to home ownership. This is especially true for first time VA home loan buyers. Tax advantages for the VA homeowner include the first time home buyers credit and the various home ownership tax deductions. In this article, I will attempt to explain both to the perspective of a VA home loan owner.

When you become a home owner, you are given the ability to claim certain tax deductions from the IRS. If you itemize your tax fillings, you could save up to $108,000 dollars a year (as of 2006). Simply by adjusting your withholding, you can receive hundreds or even thousands of extra dollars in your paycheck or LES deposit each month!

What is deductible? The following is a list with a brief explanation of the most common deductions. In some cases, even expenses and closing costs paid for by the seller can be deducted.

Mortgage interest. You can deduct interest on up to $1.1 million of loans used to buy, build or improve your first or second home. This is especially important due to the fact that a 30 year VA home loan is fully amortized. This means that a bulk of the first decade of payments in a VA home loan are interest. This interest can be a tax deduction. This alone can increase you tax deductions by more than $1,000 per month!

Moving expenses. If a move is at least 50 miles farther from your old home you can deduct travel and lodging expenses for you and your family and the cost of moving your household goods. If you are prior service and use your VA home loan benefit, this can be a substantial sum.

Property taxes. Real estate taxes can be a major deduction totaling in the thousands per year! You can deduct state and local real estate taxes associated with your VA home loan paid during the year.

First-time home buyer credit. A new $8,000 tax credit is available to taxpayers who buy their first home after April 8, 2008, and before November 30, 2009. You are considered a first-time home buyer as long as you did not own a home during the three years leading up to the purchase of your new home. As of this writing, there is talk that the credit may be extended until the end of the first quarter 2010. This credit can even be used for a buyer that uses a VA home loan.

Energy credits. You can claim a credit for energy-saving home improvements. If your home is equipped (or if you install) solar units used to heat your home or water you can claim up to $1,500.

Home-equity debt. Interest on up to $100,000 of debt secured by your first or second home — using a second mortgage, or home equity line of credit — can be deducted, regardless of how you use the money.

Home-office use. A home office that is used exclusively and regularly for business purposes can be deducted from your tax returns. This includes depreciation, utilities and insurance for the office portion of your home.

Points. Prepaid interest percentage points you pay to get a VA mortgage for your principal residence are generally fully deductible in the year paid, or over the life of the loan even if you have the seller pay the points for you.

The following items are commonly paid at settlement (close of escrow) and can also be deducted:

Escrow fees or attorney’s fees, recording transfer and county stamp taxes, land survey, owner’s title insurance, prepaid interest, and repairs.

The gift form Uncle Sam keeps giving.

If you sell your home, most likely you won’t have to pay taxes on the profit. There are capital gains exclusions for homeowners. Up to $250,000 of profit from the sale of your home can be tax free; $500,000 if you are married and file a joint return.

Disclaimer: Copyright 2009 VAHomeLoanCenters.com – all rights reserved. Philip D. Georgiades is licensed by the California Department of Real Estate as the Chief Loan Officer for VA Home Loan Centers and is not a tax adviser. Please consult with a CPA to make sure you get all the tax breaks you are entitled to. Nothing in this article should be construed as tax advice. For more information go to http://www.VAHomeLoanCenters.com.