The idea of owning a first home gives many home buyers a strong dose of sticker shock.

With a bottom line price of six figures, many first-time home buyers ask, “What's in it for me, besides a big down payment and monthly mortgage bills that last for years?” The answer is: tax breaks.

“Don't forget to calculate tax savings when deciding whether to own or how much you can afford,” says Richard Roll, president of American Homeowners Association.

“Uncle Sam has designed several tax deductions to make home ownership a little easier to manage financially. Just the mortgage interest deduction alone can be substantial.” For more information, go to http://www.ahahome.com

Three major items are deductible:

1 - Mortgage loan interest, including any late fees.

2 - Purchase points, also known as loan origination fees.

3 - Property taxes.

Here's what the numbers mean to a hypothetical buyer of a $126,000 starter home. The buyer makes a 5 percent down payment of $6,300, and takes out a 30-year loan for the remaining $120,000 at 7.5 percent interest. Total mortgage interest payments for the first year would be $8,957.

Property taxes, which vary according to where you live, will surely add up to at least several hundred dollars per year. And if you qualify, you also could deduct the purchase points, if any, from your first year's return. One point is equal to 1 percent of the purchase price, in this case $1,260.

These are substantial tax deductions. Just the mortgage interest alone, nearly $9,000, is a hefty tax break.

Remember that only the above items are deductible. You cannot deduct your homeowner insurance, or loan processing fees, or private mortgage insurance.

Naturally, there are more financial considerations to purchasing your first home than just the tax issue. Home ownership involves a long-term financial commitment, not only to a mortgage loan but to insurance, maintenance and repair needs as well. And your monthly mortgage payments may be higher than rent you're paying now.

But with these deductions, your annual tax bill may come down enough to help compensate for your higher housing costs. Crunch the numbers. Ideally, you want to reduce the tax withheld from your paycheck and increase your cash flow.

As a renter, you might enjoy filing your simple 1040-EZ, without having to fill out a longer return with itemized deductions. But if you qualify for these deductions, and they exceed the 1999 standard deduction of $7,200 for married couples filing together and $4,300 for single filers, then it pays to itemize, especially after factoring in charitable contributions and other deductions available to itemizers.

For more information on any aspect of buying a home, go to http://www.ahahome.com, the web site for American Homeowners Association.

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