One of the biggest benefits of purchasing a house is pride of ownership. It means you can paint the walls any color you desire, turn up the volume on your CD player, attach permanent fixtures and decorate your house according to your own taste.
Owning your own real estate gives you freedom to do what you want with the property. It also gives you and your family a sense of stability and security.
Pride of ownership is the number one reason why people yearn to own their house. It is making an investment in your future.
Appreciation is also a financial perk of real estate ownership. Although real estate moves in cycles – sometimes up and sometimes down over the years – the market has consistently made property values appreciate.
The Office of Federal Housing Enterprise Oversight tracks the movements of single family house values across the country. Its House Price Index breaks down the changes by region and metropolitan area.
Many people view their real estate investment as a hedge against inflation. It allows for some equity in your net worth that will grow as more time passes.
Mortgage interest deductions are another benefit to purchasing real estate. Home ownership is a superb tax shelter and our tax rates favor homeowners.
As long as your mortgage balance is smaller than the price of your property, mortgage interest is fully deductible on your tax return. Interest is the largest component of your mortgage payment.
People looking into buying real estate are also looking at property tax deductions. IRS Publication 530 contains tax information for first-time home buyers.
Real estate property taxes paid for a first house and a vacation property are fully deductible for income tax purposes. In California, the passage of Proposition 13 in 1978 established the amount of assessed value after property changes hands and limited property tax increases to 2% per year or the rate of inflation, whichever is less.
Real estate or financial pros also seek out the added bonus of capital gain exclusion. As long as you have lived in your house for two of the past five years, you can exclude up to $250,000 for an individual or $500,000 for a married couple of profit from capital gains.
You do not have to buy a replacement home or move up. There is no age restriction, and the “over-55″ rule does not apply.
You can exclude the above thresholds from taxes every 24 months, which means you could sell every two years and pocket your profit free from taxation. The amount gained from selling is subject to limitation.
Home owners also receive preferential tax treatment from the government. If you receive more profit than the allowable exclusion upon sale of your house, that profit will be considered a capital asset as long as you owned your house for more than one year.
Capital assets receive preferential tax treatment. Potential buyers should also realize that mortgage reduction build equity. Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces your obligation.
The way amortization works, the principal portion of your principal and interest payment increases slightly every month. It is lowest on your first payment and highest on your last payment.
On average, each $100,000 of a mortgage will reduce in balance the first year by about $500 in principal. This brings that balance at the end of your first 12 months to $99,500.
There is also the benefit of equity loans that are available to homeowners. Consumers who carry credit card balances cannot deduct the interest paid, which can cost as much as 18% to 22%.
Equity loan interest is often much less and it is deductible. For many home owners, it makes sense to pay off this kind of debt with a home equity loan.
Consumers can borrow against a house’s equity for a variety of reasons such as property improvement, college, medical or starting a new business. Some state laws restrict home equity loans.
Jack R. Landry has worked in real estate since 1988 as an expert on home buying and construction. He has written hundreds of articles on real estate and recommends (http://www.alwaysaffordablehomes.com) for new construction.
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