Happy New Year ! – Now it’s tax time…
In a couple of days we will be celebrating a new year – 2016. That means that tax time is right around the corner. Homeownership has always had the benefit of building wealth in the long term and quite often in the short term also.
1. Homeownership builds wealth. Homeownership does build wealth over time and is quite often the major financial wealth of a family. In the last few years, however, the turbulence in the housing market has led some to believe that homeownership is a risk – and it is to some degree, but in the long run it is a very low risk in my opinion.
2. You build equity every month. When you make mortgage payments, as opposed to rent, you build equity in your home every month. This increases your net worth and over a period of time can be substantial. This increase in equity does not include the increase in wealth that is included by the price of your home increasing in value – that adds to your net worth.
3. Tax Benefits are substantial. The tax code allows homeowners to deduct the mortgage interest from their tax obligations. For many people this is a huge deduction for a good portion of the life of their mortgage.
In addition, the points you paid when you first purchased your home are deductible. It does not matter if you paid the points or the seller paid the points, they are the homeowners to deduct. Points may also be referred to as origination fees and may be 1% or more of the mortgage.
Your property taxes on your primary residence and your vacation home are also fully deductible.
4. Home Equity Lines are also Tax Deductions. In addition to your mortgage interest, you can also deduct the interest you pay on a home equity loan or line of credit. This is substantial if you have credit card debt that you want to pay down.
5. Home Owners get a capital gains exclusion. If you live in your home for more than two years, you qualify for a capital gains exclusion when you sell your home. If you are single, you can exclude $250,000 if single or $500,000 if married from capital gains. In the last few years the housing market has taken a beating and many people may not visualize realizing that much gain in the sale of their house, but in time those days will return and that exclusion will be a big plus.
6. A mortgage is like a forced savings plan. Many people find it difficult to put money in a savings plan. But paying down a mortgage is just that, while paying for your place to live, you are increasing your net worth each month. In time there is a large nest egg that you can rely on if needed.
7. Long term, Buying is cheaper than renting. In the first few years after buying, it may be cheaper to rent, but over time, as rent increases, your mortgage payments on a fixed mortgage will stay relatively stable. In addition, with homeownership you have the tax deductions you do not have with renting.
Whether your buying your first house or your tenth, buying a home is a complicated process. If you are thinking of buying or selling, talk to a professional – talk to a REALTOR® – who can give you the information you need to make an informed decision.
As always, if I can help with any of your real estate needs, please feel free to text or call me at 301-712-8808 or email me at RolandLow1@gmail.com.
For up-to-date real estate information visit http://www.RolandLow.REALTOR.