Homeownership comes with many significant advantages.
You finally get to have a place to call your own!
You can build that dream workshop or plant that vegetable garden you’ve always been wanting.
Owning your own home also affords many financial advantages that can positively impact your pocketbook— including tax deductions, providing financial security, and the ability to contribute to a long-term asset.
Let’s take a look at some of the top financial benefits to owning your own home.
1. Home Ownership Begins Building a Long-Term Asset
Owning your own home no-doubt gives you the opportunity start building a long-term asset. While you’re renting, all of the money that you spend on housing goes out of your pocket and never returns. It’s gone forever and you’ll never get it back.
But when you own your home, you’re now building an asset. The money that you spend on your mortgage begins to build equity over time which in turn, increases your net worth.
Why is equity important? Well, at some point in the future, you can use that equity to buy another investment property, remodel your current home, finance your kids’ education, or supplement your savings for retirement.
2. Tax Deduction Benefits
When tax season rolls around, homeowners are poised to take advantage of the many different tax savings offered by the government. These savings can result in more deductions for you, which means you get to keep more of your hard-earned income.
- Property Tax Deductions
Almost anyone that owns land or a home in the United States is required to pay taxes to the county at which it resides. And in 2018, the IRS says that you may deduct up to $10,000 (or $5,000 if you’re married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes.
- Mortgage Interest Deductions
One of the largest tax incentives for homeowners involves your actual mortgage payment. When purchasing a home, most first-time homebuyers are often surprised to find that the majority of their mortgage payment goes to interest, not principal. And although you may not be paying off the principal of your home as fast as you’d like, you are able to deduct the interest paid on your mortgage. In 2018, American homeowners will be able to deduct the interest on their mortgages for up to $750,000 (or $350,009 if married and filing separately).
- Private Mortgage Interest Deductions
If you purchase a home and your downpayment is less than 20% of the home’s purchase price, you may have to pay the lender an added premium called private mortgage insurance (PMI). The good news is, if you choose to itemize your deductions, you may be able to get a tax break on your PMI.
- Energy Efficiency Upgrades
Some energy-saving home improvements that you make to your home may also be tax deductible. For example, if you choose to add solar to your home, you may be eligible for a credit of 30% of the total cost, including installation. After December 31, 2021, the solar tax credit is scheduled to expire for private installations.
3. Capital Gains Exclusion:
Imagine being able to make $250,000 and not having to pay any taxes on it. That’s what you’re entitled to (as a homeowner) when you sell your primary residence for a gain after having lived in the home for at least two of the past five years immediately prior to the sale. For married couples filing jointly, that amount increases to $500,000. There’s not many other places where you can earn gains up to $500,000 and not have to pay any taxes on it!
4. Built In Savings Program
Saving money can be hard.
It takes intentionality and discipline to consistently put money into your savings account or investment portfolio each month.
But, when you own your own home, it’s sort of like having your very own built-in savings program. Each month when you pay your mortgage, a portion of that payment goes toward the principal of your loan balance which helps to build equity in your home. And while you may lack discipline in investing or saving consistently, chances are you won’t miss your mortgage payments, thereby ensuring that you’re building equity (and your net worth) on a monthly basis without even having to think about it.
5. Buying Is Be Cheaper Than Renting in The Long Term
Sometimes, it actually makes more financial sense to rent a home than it does to buy a home. For instance, it may make sense to rent in the short-term if you have a significant amount of debt that you need to pay off. Or, maybe you have a friend that’s renting you a house or a room at a deal that is below market rate.
Indeed, there are some situations where renting certainly makes more sense than being tied up in a mortgage. However, financially over the long-term, it makes more sense to actually buy a home. In fact, the cost of renting has been steadily increasing since 1960 and show no signs of slowing down any time soon.
renting should be seen as a short-term means to a long-term solution
To conclude, home ownership brings many benefits that can have a long-lasting positive impact in your financial life. From tax credits to tax deductions to equity building, owning a home over the long term proves to be the better choice for your financial health.
Yes, renting can be a good thing.
But it should only viewed as a stepping-stone towards a path of building long-term wealth.
Can you share any other financial benefits to home ownership?