The IRS allows people of any age to claim the exemption each time they sell their home, but no more frequently than once every two years. Homeowners looking to downsize will benefit the most from the tax change. You no longer have to reinvest the profits in a home that is similar in price to avoid paying capital gains tax, and you free up cash for additional investments like rental property, mutual funds, education and more. In most cases, the interest you pay on your primary mortgage and your real estate taxes are fully deductible on your tax return. Your lender will send you Form 1098, outlining the amount you paid in interest and real estate taxes over the course of the year.
Mortgage points are also deductible.
If you bought a home last year, you can deduct the full amount of the points you paid as home mortgage interest. Meanwhile, if you sold a home in 1998 and paid points, you cannot deduct them as interest but you can claim them as a selling expense if your profit is subject to a taxable gain. One last point about points. If you were one of the many homeowners who took advantage of low interest rates and refinanced your mortgage last year, the points you paid on the refinanced mortgage are not fully deductible on your 1998 return. You can, however, deduct refinancing points as mortgage interest over the life of the loan.