BY JUDY ROSE

FREE PRESS COLUMNIST

One of the times home owners are most grateful for their house is while preparing their tax returns. To make sure you get every tax benefit possible from owning your house, here is a list of all common deductions.

The list come from Bob Walters, vice president of Rock Financial; CPA Brian Weiland of Brian Weiland & Associates in Waterford and CPA John Yax of Kotowski and Yax in Sterling Heights.

If you bought your home after Oct. 13, 1987, you can deduct the interest you pay on a mortgage up to $1 million. That's $500,000 if you file as "married filing separately." If you bought the house before Oct. 13, 1987, mortgage size doesn't matter.

Your residence could be a boat, a motor home or a trailer, as long as it has sleeping, cooking and toilet facilities.

If you have a second mortgage you used for something other than buying, building or improving your home, the interest is deductible up to $100,000 of that second mortgage. For example, if you have a second mortgage for $150,000 and you used the money to buy a boat, interest can be deducted only on the first $100,000. Interest on the remaining $50,000 isn't deductible.

A piggyback second mortgage, though, is fully deductible. That means a second mortgage that goes toward buying the house. For example, you might have a conventional mortgage for 80 percent of the price of your house, plus a piggyback second mortgage for the 20 percent that becomes the down payment. In that case, there's no limit on the amount of the second mortgage eligible for the interest deduction.

You can usually deduct the mortgage interest paid on both your primary residence and second home.

If you rented out your second home for part of the year, other rules kick in. In that case, to qualify for the deduction, you must live in the house at least 14 days or 10 percent of the total time it was rented out. For example, if you rent out your second home for 200 days, you have to live in it for 20 days to qualify for the interest deduction.

If you use a construction loan to build a house, you can deduct interest on that mortgage as long as you occupy the house within 24 months of the start of construction.

Late-payment penalties are considered deductible interest.

A mortgage prepayment penalty is deductible if you pay one.

Points, the up-front fee you may pay to get a lower interest rate, are completely deductible when you buy a house. The exception would be if you pay points instead of some other mortgage cost, like the appraisal or title insurance, but this is not common.

Points you pay if you refinance have to be deducted over the life of the loan. For example, if you refinance a 30-year mortgage, you can deduct just 1/30 of the points each year. But the year you sell the house or refinance, you can deduct whatever's left of the points.

If you refinance and use all the extra money to improve your main home, you can deduct any points you paid in that same year.

Points you pay while buying a second home must be deducted over the life of the loan, not all in a single year.

Even if the house seller pays points for the buyer, the buyer gets the deduction.

Property taxes are all deductible. What's more, you can time when you pay the taxes to get the best deduction -- bunching the payments into one year when you want more deductions. This can be a good plan, says John Yax, if you are near the point where it may not be worthwhile to itemize deductions. You can pay extra property taxes in one year and itemize deductions that year. For example, delay your winter 2003 taxes and pay them in 2004, Yax says. Then pay your winter 2004 taxes on time so that they're also counted in 2004. That gives you a bigger deduction the year that you itemize. The following year, when you pay fewer taxes, just take the standard deduction.

If you bought your house this year, be sure to look on your closing statement for the taxes you prepaid during closing. These are a deduction.

If you sell a house and make a profit, you can exclude that profit from your tax return up to $250,000 for a single person or $500,000 for a married couple. The rules say you must have used that home as your primary residence for two of the past five years. You cannot do this more than once every two years, with certain exemptions for job change or illness. That goes for either spouse. For example, a recently married couple would not be eligible for the $500,000 exclusion if one partner had used the deduction while selling a house within the past two years. But the remaining spouse would still be eligible for the $250,000 exclusion.

If you make a profit from selling your second home, it is subject to capital gains tax. If you are able, says Brian Weiland, you could avoid that tax by moving into your second home for two years. Make sure you meet the criteria for length of time there, Weiland says. "It's whichever is longer -- either two years after I sell my first home or two years after I move into my second home."

In December 2002, the IRS relaxed its position on selling a home where you had a home office. Before that, you had to pay capital gains tax on the portion of the home you'd been counting as the home office. So if you sold a 1,000-square-foot house, where you'd been claiming a 100-square-foot-office, you'd have to pay capital gains tax on 10 percent of the profit from your sale -- often thousands of dollars. Beginning now, you don't. You only have to pay tax on a much smaller number -- depreciation you'd taken on that 10 percent of the house. This will be something like a few hundred dollars.

Contact JUDY ROSE at 313-222-6614 or rose@freepress.com.