Buying opportunities, for those looking for bargain deals, are still good and should extend well into 2010 and 2011. Housing starts according to the Commerce Dept. have come in lower than expected for 2009.

One would naturally think, as home builders attempt to reduce inventory, that home prices would stabilize. To a certain extent they have stabilized albeit temporary.

First time home buyers who have been sitting on fences, automobiles and motorbikes are now out in force trying to take advantage of the $8,000 tax credit set forth by the U.S. government. Ironically, the tax credit is due to expire on November 30'th. This small flood of home buyers has temporarily created a high demand in low to middle income housing which in turn has created more competition among investors seeking cheap deals on foreclosures and HUD homes.

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There are a wide range of deductions available for most real estate investments.  Investors will often seek to purchase properties because of tax benefits available to the owner. Eligible income tax deductions for all properties include things like mortgage interest paid and property taxes.  Even more deductions such as maintenance expenses and hazard insurance premiums are available on investment properties.

 The obvious goal here is to protect as much of your income from taxes as possible. Knowing the available tax deductions can turn a good property investment into a great one. An informed investor can be very effective at doing this. Let's look at some of the most popular tax deductions for real estate owners in a little more detail.

One income tax deduction is mortgage interest.  Any mortgage interest paid during the course of the year can be deducted from your taxable income for that year. For example, a $100,000 mortgage at 8% interest will yield an interest deduction of $8,000 during the first year of the loan. This would allow you to deduct $8,000 from your taxable income if you itemize your deductions. The deduction for mortgage interest paid is the same for all properties you might own, whether investments or otherwise.

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The more you make does not necessarily mean the more you you keep (from the IRS). Reason? Taxes, of course. The more you earn, the more the government takes away from you. It is a crazy equation but there it is. More and more people are realizing that it makes sense to invest in real estate. The reason is excellent tax breaks.

Also, reflect on another fact. Capital gains' is taxed maximum at 15 percent and wage income at 35 percent. Of course, the tax benefit accrues to you providing you've held the property for twelve months or so by renting it out or living in it. Do you now wonder that an increasing number of people are turning towards real estate as a lucrative investment opportunity?

To be sure, there are definite tax benefits that accrue to you to if you are selling your home. Be mindful of the fact, though, that the residence would have had to be used in a ‘productive' capacity as in having lived there yourself or having rented it out. For sure, the real estate sector is on a downward trend but because it has enjoyed an unprecedented boom for so long, long-term home-owners need not worry. The longer time you own your home for, the higher the tax benefit. The tax applied would be a version of capital gains. The initial $25,000 is exempted from capital gains on the sale of your house. And if you are married, so much the better, your tax exemption goes up to $500, 000.

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Assuming you are basically aware of your tax liabilities for the current year, and you have a feeling about whether additional deductions will be more useful this year or next year is the first step in determining how to schedule your closing. (Of course, if you aren't aware of your tax situation, it's best to consult an accountant or tax-preparer first.)

Now that you know your impending tax liabilities, you need to know that closing before the New Year will allow you to take the deductions for your home purchase immediately, i.e., the next time you file. On the other hand, closing in January will allow you to take those deductions the following year.

How closing costs affect your taxes

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