Home Flickr Mark Moz
Image: Mark Moz via Flickr.

One of the biggest financial benefits of owning a home is qualifying for the tax breaks that homeowners are eligible to receive. Many of the tax deductions for home-related expenses are well-known, but others often slip under the radar. Below, we'll run through the list of deductions for homeowners that you shouldn't miss.

1. Mortgage interest
One of the most popular home-related deductions is for the interest you pay on your mortgage. You can deduct interest on borrowings of up to $1 million that go toward the purchase, construction, or improvement of a primary residence or a second home. In addition, you can deduct interest on up to $100,000 of money you borrow through a home equity loan or line of credit for other purposes. These deductions are itemized on Schedule A.

Your lender will tell you the portion of your monthly payments that count as interest. In addition, if you just took out your mortgage and paid points on it, you can often deduct them in full. For those who obtained mortgage insurance after 2006, you can treat premium payments as deductible mortgage interest.

2. Property taxes
State and local property taxes are deductible as itemized deductions. If you pay property taxes through your mortgage lender as part of a single payment, then the tax statement you receive from your lender should include how much of your payments went toward property taxes.

Note that the amount deductible depends on when you pay the tax, not when the tax is due. You can therefore boost your deductible expenses by choosing to pay property taxes earlier than you'd otherwise have to pay. For some taxpayers, that can help you boost your itemized deductions enough to make it worth it to itemize rather than taking the standard deduction.

3. Capital gains on the sale of your home
Ordinarily, if you sell something at a profit, you have to pay income tax on it. But for a home, the tax laws let you avoid capital gains tax on the sale of a personal residence if the gain is less than $250,000 for single taxpayers or $500,000 for joint filers. Technically, this is an exclusion rather than a deduction, but the net effect is reducing your taxable income from what it would ordinarily be.

To qualify, you need to have owned and used your home as your main home for at least two years out of the five years immediately before the sale. In addition, there are limits on using the exclusion too many times in succession that can reduce the exclusion amount. Nevertheless, avoiding capital gains can end up being the biggest tax break you'll ever get.

4. Home improvements for medical reasons
As people age, they often have to make changes to their homes to accommodate their medical needs. If you make home renovations in order to meet the needs of a disabled person or someone with a chronic illness, then the amount spent can qualify for a deduction as a medical expense.

Note that medical expense deductions are limited in a couple of ways. Like other home-related deductions, you have to itemize in order to claim health-related improvements. But in addition, you can only claim those deductions to the extent that they and any other healthcare costs you incur during the year exceed 10% of your adjusted gross income.

5. Cancelled mortgage debt
Over the past decade, millions of homeowners have had mortgage debt cancelled. In many cases, those who were underwater on their mortgages were able to take advantage of federal programs to have their outstanding loan balances reduced.

Ordinarily, when you have a debt reduced, the reduction is treated as taxable income. But a 2007 law made cancelled mortgage debt an exception to that rule, and in December, that law was extended through the end of 2016. As a result, if you have a distressed property and negotiate a break with your lender, you won't have to worry about unexpected taxable income this year.

Buying a home is a big step, and every penny you can save on your taxes makes your home more affordable. By taking full advantage of the tax breaks at your disposal, you can make it that much easier to buy and maintain the home of your dreams.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.