Tax day is looming for millions of Americans, and the deadline will see many of us standing in line at the post office waiting to hand in our share of the national revenue. But if you bought, owned or sold real estate during the last year, your burden may be a bit lighter due to the many tax incentives built into our tax code for homeowners.

There are many tax benefits associated with ownership of your home as a principal residence. They can be divided into three areas: the purchase; mortgage interest expense; and profits from selling your home.

The most significant tax advantage in the buying process is the deductibility of loan discount points (including any loan origination fees).

The IRS says discount points are deductible regardless of who pays them, as long as they are normal and reasonable for the area. In addition, you must then live in the house as your residence.

This is an unusual deduction, for it is rare that the IRS allows a deduction for an expense paid by another party. But in this case, Congress determined that many buyers prefer to include loan origination fees in the purchase price to hold down up-front cash expenditures. The IRS compensates for this generosity by decreasing your acquisition basis if you build these deductible fees into the price.

In the current buyers' market, my advice is always to ask the seller to pay all your loan expenses. But if you end up having to pay anything, make sure it's the discount points. That way, you get the deduction now and don't suffer the capital gains effect of a lowered basis later.

The second area of tax benefit for home buyers is the interest expense on the loan you take out to buy your home. The interest you pay on your home mortgage is still 100 percent tax deductible in most cases.

Generally speaking, your deduction for home mortgage interest is limited to the interest you pay for the loan you used to first purchase your home, up to a debt limit of $1 million. Know that, as you pay down your loan balance, your acquisition indebtedness decreases.

Subsequently, refinancing to a higher balance may not provide a total deduction for the new interest payment.

The one exception to this limit is an additional $100,000 of home equity debt, regardless of the source. So if you originally borrowed $200,000 to purchase your home, then paid that balance down to $100,000, you could refinance for up to $200,000 later and still deduct all the interest expense. Interest on debt above that level might not be deductible. Check with your CPA for details.

Another ongoing expenditure that creates a deduction is property taxes. Lastly, private mortgage insurance fees may be deductible if you qualify. You must have purchased your home during 2007 and your adjusted gross income must be under $100,000. Other ongoing costs, such as hazard insurance, are not deductible.

The last category is tax breaks when you sell. Here, the big break is formally known as "exclusion of gain on the sale of your principal residence" — better known by its nickname, Section 121. Generally speaking, if you have owned and occupied a house for two of the past five years as your principal residence, you are eligible to exclude up to $500,000 for each residence you sell if you are married. If you are single, the limit is $250,000. Furthermore, you can do this every two years for the rest of your life.

Several years ago, questions arose about whether homeowners who sold their homes having occupied them for less than the two year period might get some sort of reduced benefit. In a generous response, the IRS ruled that you can take a prorated portion of this exclusion, based on the percentage of the required occupancy period you meet. However, you may take the prorated portion only if you experience a change in employment or health, or if you have an "unexpected circumstance" in your life.

Because the tax benefit associated with selling your principal residence is potentially so large, it is important to understand it fully. You can download IRS publication 523 from the tax agency's Web site at www.irs.gov, but it's also wise to check with your CPA for all the details.

Find more articles by John Adams online at ajchomefinder.com.