To encourage you to consider buying a home, Congress has included in the tax code a variety of financial incentives available only to homeowners. These benefits can be divided into three areas: when you purchase, during your ownership and when you sell.

When you buy a house you plan to occupy as your principal residence, there are two major areas of tax savings. The first is prepaid interest in the form of "daily" interest expense, which is interest on your loan amount charged by your lender for each day between the day of closing and the end of the current month. The second is loan discount points, including the loan origination fee charged by the lender as part of the regular settlement costs.

Depending on the day of the month you close, your daily interest expense may amount to almost as much as a full monthly payment. That's because most lenders make loan payments due on the first day of each calendar month and use daily interest to get to the end of the month of settlement, then begin the term of the loan. If you close early in the month, your daily interest may be substantial.

Furthermore, lenders often forget to include the per diem interest in their annual mortgage interest statements, known as IRS Form 1098. Because it is not technically part of the amortized loan, it can be easily overlooked. Make sure your tax preparer remembers to include this deductible interest expense as part of your overall interest deduction. It is shown clearly on your HUD-1 settlement statement as "daily interest."

Discount points are typically used by lenders to increase their yield and are considered by the IRS to be prepaid interest. Because interest rates have been so low recently, few lenders are charging traditional loan discount points. Instead, most loans in the Atlanta area are offered "at par," meaning they carry no charges for points.

A few years ago, the IRS reversed its position on the deduction for certain loan origination fees. Now a lender's loan origination fee can be considered a "discount point" if it is expressed as a percentage of the loan amount on the settlement statement and if the amount is "normal and reasonable" for the area.

Lenders in the Atlanta area routinely charge 1 percent of the loan amount as a loan origination fee, and that amount would be appropriately taken as "prepaid interest."

One loophole that many buyers miss is this: The IRS allows a buyer of a primary residence to take a full deduction for the discount point paid, regardless of who pays it. So if a seller or builder pays your closing costs, you can still get a substantial deduction for the entire amount of the origination fee even though it didn't cost you a dime.

Again, some lenders fail to report origination fees or discount points on IRS Form 1098 because these are not part of the amortized loan, so missing the deduction is common.

The second major area of tax benefit when you own a home is the tax deductibility of home mortgage interest you can take during the life of your loan. Depending on your situation and whether you itemize, this deduction may lower your effective cost of borrowing from 6 percent to around 4 percent.

There are limits on the deductibility of home mortgage interest, and that interest is only deductible on debt used to acquire or improve your home. In addition, you can always deduct interest on the first $100,000 of home equity debt.

This feature allows homeowners to perform "debt-shifting," a technique of shifting nondeductible personal debt away from credit cards and cars and replace it with deductible home equity debt.

The final area of tax benefit becomes apparent when you sell and is perhaps the most remarkable area of tax savings. It involves a tax "exclusion," which is much more powerful than a deduction.

The IRS says that when you own and occupy your residence for any two of the five years preceding the day you sell, each owner may exclude up to $250,000 of profit from taxation. Therefore, a married couple can make up to $500,000 on the sale of their residence and never pay a penny in income tax.

And, most remarkably, you can do this once every two years for the rest of your life. You don't have to be a certain age, and you don't have to reinvest in anything unless you so desire. For many Americans, this means their home has become their ticket to a more comfortable retirement.

All tax deductions and exclusions have strings attached and may not apply in every situation, so talk to a tax adviser before making any major financial decisions.

John Adams is a broker and investor. His Web site is www.money99.com.