If the recent dip in mortgage rates has you contemplating homeownership, it pays to do some tax calculations before you start shopping around subdivisions. Homes remain one of the most lucrative tax shelters left in the tax code. But many people underestimate the value of those benefits. For example, assume mortgage interest and property taxes total $1,400 a month. For a homeowner in the 28 percent tax bracket, deducting the payments would result in federal tax savings of as much as $392 a month. That would reduce the out-of-pocket cost of the $1,400 monthly payment to $1,008.

Home mortgage interest and points provide the big payoff.

The biggest tax savings available to the majority of homeowners come from mortgage interest. Each year, taxpayers who itemize can deduct interest paid on up to $1 million in mortgage debt incurred. In addition, the interest you pay on up to $100,000 of home equity debt is also fully deductible, regardless of how you use the funds. Even late-payment fees assessed by your lender are deductible. Keep in mind that these tax deductions and certain other itemized deductions are phased out for some high-income taxpayers.

Mortgage "points."

"Points" paid to a mortgage lender can also be deducted right away. Points are the one-time fees that are routinely assessed on mortgage loans to boost the effective yield to the lender. These charges often run thousands of dollars.

Property taxes are fully deductible.

While real estate taxes can add substantially to your monthly mortgage payment, the amount you pay to local and state authorities is fully deductible (subject to high-income phase-out rules). Many lenders include in monthly statements an amount placed in escrow for real estate taxes. Your deduction for real taxes. Your deduction for real estate taxes is equal to the amount the lender actually paid from escrow to the taxing body. Be aware that this amount may be more or less than what you contributed to escrow during the year.

Special credit for low-income buyers.

Some states participate in the Mortgage Credit Certificate (MCC) Program, designed to help low-income buyers afford homeownership. You may be able to claim a tax credit up to a maximum of $2,000, rather than a deduction for part of the mortgage interest you pay. If you have any unused credit, you can carry it over for the next three tax years. Interest not qualifying for the credit is deductible as home mortgage interest. To be eligible for the credit, you must obtain a mortgage credit certificate from your local or state government before you obtain a mortgage. Contact Pennsylvania's housing finance agency www.phfa.org/index.htm for information about the availability of MCCs.

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