Responding to Zack's addition to my answer. His math is correct. I didn't say all of the mortgage deductions were in addition to the standard deduction. It is correct that you essentially only get the difference as extra savings. However, a point I was making is that there are deductions that you cannot take unless you itemize. For example, medical, employee business expenses, charitable deductions. So in addition to the extra benefit of the home mortgage and taxes, (at least the amount over what you would have gotten with the standard deduction) you might have other deductions to add to this. The bottom line is, howver, don't buy a home for the tax deductions alone. There are many reasons that people want to own their own home. Potential tax deductions is only a small part.

Just to add a bit to Janice's answer...

"If someone was not able to itemize deductions before (ie the total was less than the standard deduction) home ownership deductions will usually be enough to itemize thus letting you deduct other things that you couldn't when you used the standard deduction. "

This is a really nice way of looking at it. Its basically meaningless, but its does sound pretty. What is being said here, is that if you couldn't itemize before, and now you can, then you're not getting a full tax break from owning a home, only partial. Here's an example with totally made up numbers. Say before your itemized deductions were $3,000 and your standard deduction was $7,500. Now you add $10,000 in mortgage interest and RE taxes. So now you're itemized deductions are $13,000, so you itemize. But before your deduction was $7500 so you really were only able to deduct 55% of your tax-deductable homeownership costs. In expensive areas around NY, you're likely to be able to deduct 100% of your the interest and RE taxes, in less expensive places, its very likely you will not.

"Another tax break: Later, when you sell a personal residence for more than you paid for it, you won't have to pay taxes on the gain (up to $250,000 for an individual or $500,000 for a couple)."

I'd have said, "Later, if ..." There are a lot of people out there they are not selling their personal residence for more than they paid for it.

You are probably better off renting. The tax deduction doesn't amount to much. If it was that great, everyone would own a house. Currently there are a lot of unhappy home owners. Do you want to be an unhappy homeowner? Wait a few years to buy, houses will be cheaper. Good luck

There are several ways home ownership helps you on your taxes. Deductions for interest and real estate taxes for one. These are deducted on schedule A where you itemize your deductions. If someone was not able to itemize deductions before (ie the total was less than the standard deduction) home ownership deductions will usually be enough to itemize thus letting you deduct other things that you couldn't when you used the standard deduction.

If you would like to see the money sooner rather than wait until you get a refund, you can have a tax advisor figure out the estimated reduced tax and change your withholding to keep a little more of each paycheck.

Another tax break: Later, when you sell a personal residence for more than you paid for it, you won't have to pay taxes on the gain (up to $250,000 for an individual or $500,000 for a couple). Consult your tax advisor for how all this applies to you.

Your tax saving benefits happen when you file your taxes and you get to write off your interest on your house payments!

Congratulations on your choice to become a home owner!