Tag Archives: Tax deduction

04.21.13
by

What are the Benefits of Owning Your Home?

My last post discussed the issue of buying versus renting, and I pointed out a couple of the benefits of home-ownership such as building equity and getting great tax deductions. Based off of these two benefits we established that owning was clearly better than renting. Now I would like to expand on this by explaining the benefits to home-ownership in more detail. The first, and most obvious, benefit to owning your home is that you don’t pay rent. Part of your monthly payment goes to the principal amount on your mortgage and you build-up equity. So you are not just throwing away your money on a monthly basis. Your are building up equity in an (usually) appreciating asset, real estate, that is one of the best investments you can make. So not only are done throwing your money away, you are also making a great investment. And if you are taking out a mortgage to pay for your home, you are leveraging your money in one of the safest ways possible. Here is how leverage works: lets say you are buying a $200,000 home with an FHA loan that requires 3.5% down payment. When you purchase your home you put down $7,000 in order to purchase a $200,000 home. Lets say you get an average appreciation of 3% a year on the value of your home. Well, instead of gaining 3% on that $7,000 that came out of your pocket at closing, you are getting 3% on the entire value of the home. So instead of your return being $210 after one year, you are receiving a return of $6,000 after one year. A $6000 return on an initial investment of $7000!? That is a return of 85% on your money, where else can you find returns like that? Not on the stock market, not with CDs, not with ANYTHING. Now this equation was simplified because I did not include your monthly mortgage payment. But this is a great way to show how leverage works. And historically, over time, the value of your property will appreciate at a steady rate. On top of the fact that purchasing a home is a fantastic investment, it can also save you thousands of dollars on your taxes. There are multiple tax deductions and credits that come along with home-ownership, and who likes paying taxes? The biggest tax deduction would be the mortgage interest tax deduction, which allows you to right off the interest you pay on your mortgage. The next big deduction is your property tax deduction. Here in Texas we have a pretty large property tax in order to pay for our school systems. This is another great deduction on your federal income taxes. With just the mortgage interest and property tax deductions alone, you could potentially save thousand of dollars a year. And these are just two of the possible tax deductions you may receive through home-ownership. You can also get deductions or credits from the use of a home office, making your home energy-efficient, home improvement loan interest, PMI deduction, and profit on the sale of your home. Because I am not a CPA I do not want to go too in depth on an tax issues, but I really just wanted to get the point across that homeowners receive a ton of tax benefits that they would never see if they stayed renters. Depending on the size of down payment, and the length of time you have lived in your home you will have built up a certain amount of equity. Once you have enough equity built up in your home you will be able to take out a home equity loan, or home equity line of credit. If you are ever looking to make improvements to your home, need some quick money to pay for something unexpected, or are looking for a line of credit to help start a business, you have access to loans that renters do not have the privilege of accessing. Because you have equity built up, banks can look at that has collateral and will be more than happy to help loan you money for whatever you may need it for. This is just another benefit that comes along with owning your own home. These are all great financial benefits to home-ownership, but owning your own home comes with other benefits that are not related to finance. When you own your home, its YOURS and you can do whatever you want with it. There is a great amount of pride and prestige that can come along with owning your own home. It has been taught to us and to the generations before us, that the American Dream is have the ability to purchase your own home. A place where you can raise your family and build great memories together for years. If you want, you can stay in your home for as many years as you like, without ever having to worry about rent going up or dealing with loud neighbors above you. You will not have a landlord telling you what you can and can’t do with your property. When you own your private home, it is YOUR domain, you are free to use it any way you see fit, and you can make it into something that you and your family will enjoy for as long as you want to stay there. The sense of pride and satisfaction you can get out of owning a home that you and your family share together is something that can only be attained by going out there and buying your own home. Once you pay off your mortgage you own your home outright, and you can make sure that it will be passed down to your children or grandchildren, and you will be able to have the comfort that comes along with knowing that no matter what, you and your family will always have a place that can be called home. As you can see, there are many great benefits to home-ownership. It not only is the American Dream, but it is a financial tool that can save you money and help you earn money. It is also a place where families are built, and memories are made. And the greatest thing about home-ownership is that anyone in this country, that is willing to work for it, has the ability to make this dream come true.

family in front of home    78366512

http://www.nfcc.org/housing/Advantages.cfm

http://www.realtor.com/blogs/2013/03/15/the-top-10-real-estate-tax-deductions-for-homeowners/

http://www.kiplinger.com/article/real-estate/T010-C000-S001-deductions-for-homeowners.html

Related articles