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31 Tax Breaks

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You can exclude up to $250,000 (or $500,000 per married couple) of gain on the sale of your principal residence. This exclusion may be used once every two years.

In addition, you must have claimed the property as your principal residence for at least two of the last five years that you owned it.

If you've been holding off on buying property, stop renting or leasing your principal residence. Buy a home, and then you can deduct the interest portion of your mortgage payments from your federal income tax.

Mortgage rates are currently are at or near record lows, and several mortgage companies are quoting incredible rates. If you've been contemplating the plunge, 2002 may be the year to act.

If you have any outstanding debts, you may want to use any home equity to consolidate those debts using a home equity loan. Lenders usually provide interest rates than other debtors (credit cards, auto loans, etc.) , and the government allows a deduction for interest paid on all home equity "indebtedness" loans.

This deduction is usually allowed on home equity loans up to $100,000. Check with your tax advisor for more information.

A whole slew of tax breaks are designed to encourage higher education. For instance, Coverdell Accounts (formerly known as the Education IRA) allow you to save money on a tax-advantaged basis for the purpose of higher education.

The Hope tax credit provides dollar-for-dollar reductions in taxes for taxpayers, spouses, or dependents attending qualified educational institutions. The Hope tax credit gives up to $1,500 of credit for each of the first two years of college.

Instead of the Hope tax credit, taxpayers can opt to use the Lifetime Learning tax credit. Students wanting to acquire or improve their job skills can have up to 20% of expenses incurred at qualified institutions refunded in the form of a tax credit.

Transferring assets to grandchildren or even great-grandchildren directly can incur the dreaded Generation-Skipping Transfer Tax.

Instead of gifting directly to your heirs, consider gifting to a "generation-skipping dynasty trust." A generation-skipping dynasty trust, established on behalf of your loved ones, can avoid estate and gift taxes for up to three generations.

To learn more about Dynasty Trusts, click here.

Tax Breaks Include