This article reviews the advantages of homeownership as compared to renting. Homeownership creates a wide range of opportunities from increased social standing, financial benefits, and tax deductions. Homeownership is a means to increasing personal wealth, protection against inflation, and also significant tax advantages. The following list compiles the main financial and social benefits of homeownership:
• Tax Deductions – The tax advantages of homeownership include the following deductions: mortgage interest, real estate property taxes, moving tax credits, and capital gains. According to the IRS, if a property is owner occupied, the homeowner can deduct the interest paid on their mortgage loan and their equity or second mortgage. In addition, the property taxes for owner-occupied dwellings may be deducted. The capital gains tax break is applicable, if you sell your owner-occupied home for a profit and then use the profit to purchase another property. Whereas, the moving tax credit can be utilized if it is necessary to move for employment.
• Freedom to Customize – As a homeowner, you will have the freedom to remodel or improve your house without permission from a landlord. Whether you want to repaint a room, install new carpeting, finish the basement, or add an addition for more space, the choice is yours.
• Forced Savings – If you have a mortgage on your home, part of each payment you make will be towards the principal balance of your mortgage. Each time you make a payment you are building equity in your house. Each payment is a long-term investment in your future. In addition to paying down your mortgage, most housing appreciates, thereby creating more wealth for you the homeowner.
• Stability – Renters typically sign annual leases. If the landlord wants to sell the house or has financial issues you could be forced to move. In contrast, homeowners have full control over their property and decide if and when they will sell their home.
• Fixed Monthly Payments – As a renter, your monthly payment will likely increase over time. You will have little control over future increases in your monthly payment. A homeowner with a fixed rate will only see their payment increase if the property taxes or homeowners insurance increases.
There may be other benefits of homeownership depending on your income, family size, and investment philosophy. Before purchasing a home to occupy or investing in rental property, it is advisable to discuss your specific tax advantages of purchasing property with a knowledgeable tax preparer or CPA. Tax laws are constantly changing and can be extremely complicated.