Close menu

Tax Benefits Of Owning A Home

For most people, owning a home is more sensible from renting one. As a homeowner, you have the freedom to do anything with your home. Homeowners can paint the walls with any color that they want, or you can change some fixtures and furniture to match your style. But more than the freedom, there are many tax benefits of owning a home vs. renting. It is important to take note that homebuyers get a lot of tax benefits that can be used to critically deduct and lower your overall tax bill. In a survey done by the Internal Revenue System (IRS), a homeowner can claim an average of $15,871 of tax deductions from their homes. Certain deductions are imposed on the interest paid on the mortgage, points paid on the mortgage, cost of the property taxes, and the cost of insuring the mortgage. If you are a real estate agent, it is crucial that you inform your potential clients about the tax benefits of owning a home vs. renting. Thus, this article will give an in-depth discussion of the tax benefits of owning a home vs. renting and if selling your house fast in California makes sense.

Tax Benefits Of Owning A Home Vs. Renting: Deduct The Interest Pay On The Mortgage

Taxes_Sell_House_Fast_VallejoThe mortgage interest deduction allows the homeowners to make certain deductions on the interest on their mortgage for up to $1 million for single homeowners and $500,000 for married couples filing separately for tax deductions. During the first few years of paying the mortgage, a large portion of the mortgage they pay monthly goes to the interest. For instance, if the mortgage is $200,000 with a fixed rate of 4% for 30 years, the interest that will be paid in the first year is $8,000. The interest can be deducted depending on the income bracket of a homeowner. If the homeowner belongs to the 25% income bracket, then $8,000 x 0.25 is $2,000. This becomes the savings. Since people who rent do not pay any mortgages, they cannot avail of the mortgage interest deduction. It is actually their landlord that gets the benefit while the renter jut merely pays for the cost.

Deduct Points When Buying A House

The act of buying a house alone can help homeowners get deduction through purchasing discount points. Each point costs 1% of the loan amount. For example, if a homeowner buys one discount point for the mortgage loan amount of $200,000, this equates to a $500 tax savings assuming that the tax bracket is 25% ($2,000 x 0.25 = $500). Lowering the monthly mortgage payment can also lower the interest rate.

Deduction On Property Taxes

One of the tax benefits of owning a home vs. renting is that homeowners can get deductions on their property taxes. Renters, on the other hand, are not eligible for a property tax even if the payments they make to their landlord are used to pay for the property tax. It is actually the landlord that benefits from deductions on property taxes.

Tax Deduction From Buying The First Home

One tax benefit of owning a home vs. renting is that first-time homebuyers can make the smallest down payment that they can so that they can save up a lot on their expenses. Many mortgage lenders allow first-time homebuyers to get a loan with only 3.5% or 5% down payment instead of the usual 20%. However, the caveat of paying for a lower down payment is that the homebuyer is likely encouraged to buy a more expensive insurance for your home. The bright side is that mortgage insurance is also deductible depending on the income limits. The full cost of the house is deductible if the income of the homeowner is less than $100,000. Congress has to renew it yearly thus it is important to be aware of the changes of the mortgage insurance deduction.

Green Tax Deduction

Homeowners can get as much as $500 tax credits for making their home greener and more energy efficient. Homeowners can renovate and add fixtures that will make their home more energy efficient including installing insulation, heating and cooling system, windows, and doors. Although this article is discussing the tax benefits of owning a home vs. renting through tax deductions, a tax credit is a better benefit since it uses a credit dollar-for-dollar to offset the taxes owed. If the homeowner owes $500 in federal taxes and there is a $100 tax credit thus the homeowner only pays $400 for the federal tax.

Capital Gains Exclusion

Perhaps one of the biggest tax benefits of owning a home vs. renting is the capital gains exclusion. The benefit of capital gains is that homeowners can use it more than once to file for an exemption from paying taxes on profits. It is better to balance the capital gains deduction with investing in stocks and bonds as one can get 15% on the profit once the stocks or bonds have already been cashed in. For instance, if the profit in the stock market is $500,000, this means that the capitals gain taxes is $75,000. There are many tax benefits of owning a home vs. renting. Consulting with a tax adviser is very important in getting the benefits of owning a house. People who are still in a transition may benefit more in renting a house, but it is still crucial that they find a house that they can finally settle in. Once they buy a house, it is not only the tax benefits that they can enjoy but also they are locking in their monthly housing costs as they don’t have to pay any rent. Having a home that has been fully paid is one of the greatest assets anyone can own. As a real estate agent, it is your responsibility to inform your potential clients about the tax benefits of owning a home vs. renting. However, if they are having second thoughts because they feel like owning a home will put too much burden on their finances, there are ways for them to generate more funds to acquire their dream home. If you need more information or help, contact Sell Quick California at 916-287-1939. And if you are selling a home, we can likewise help with cash for your house offer.