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The second best reason to buy a home is the
tax savings associated with owning a home.
It does not only allow you to deduct the mortgage interests
(as long as your mortgage balance is smaller than the price
of your home, up to a limit of $1 million!), you can claim
property tax as an income tax deduction. This is huge. For
many people, any other tax deductions cannot even come close.
Owning a home also gives you the ability to itemize your deductions,
which you may not have been able to do previously. |
| If you’re moving at least
50 miles closer to your job than your old home, you
can write off your moving expenses as well. In this
case, you must continue to work full-time in the general
area of your job for 39 weeks during the following
year to qualify for this deduction. If you’re
self-employed and work in your home, any move of 50
miles or more will make your moving expenses deductible,
although you must also work full-time near the new
location for 78 weeks during the next 24 months. |
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In addition, once you have lived in your
home for at least two of the previous five years, you don’t
have to pay taxes on any profit you make when you sell your
home. The law allows you to exclude from taxes up to $250,000
in profit from the sale of your principal home -- $500,000
for a couple who file jointly. However, you can only claim
the exemption once every two years.
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Here, the word “Appreciation”
refers to an increase in value of a property.
Even though real estate moves in cycles, sometimes up,
sometimes down, over the years, the national median home
price has been consistently risen -- even during recessions
and periods of sales declines -- since 1968, when the NAR
began tracking it. The Federal Housing Finance Agency tracks
the movements of single family home values across the country.
Its House Price Index breaks down the changes by region
and metropolitan area. Many people view their home investment
as a hedge against inflation.
More than likely, your house will be worth more in a few
years than you paid for it. Even if the house you purchased
did not appreciate in price, you would be able to sell it
and recoup some of the money you put into it, whereas you
absolutely cannot recoup any of the money you paid for rent.
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Each month, part of your monthly payment
is applied to the principal balance of your home loan, which
increases the portion of property that you actually own.
This process is called “building equity in your home”.
Owning a home with more equity can become a good source
for future credit and or financing. Homeowners are able
to turn the equity that they have in their home into a loan
or line of credit through refinancing. The biggest benefit
of home equity line of credit is that the borrowers may
get a tax deduction on interest paid for the loan, while
credit card interest is not tax deductible. This benefit
has proven to be important in a down economy or in emergency
situations where medical bills are unmanageable, home repairs
or improvements are needed, or kids need funds for college.
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