Tax Benefits of Owning Real Estate: Why Renting Might Not be Best for You
If you've been wavering on the idea of renting versus buying your next home, you may be thinking about all of the benefits of renting. When you rent, most of the home's upkeep falls in the landlord's lap, leaving you to simply enjoy the home without the expenses of homeownership. Yet there's one very important benefit you are overlooking in this decision, and that is the real estate ownership tax benefits. Before you make the decision between buying and renting, make sure you are looking at all of the potential benefits and drawbacks, including these common real estate ownership tax benefits.
Benefits at the Time of Purchase
When you purchase your home, you get to deduct interest. This means that all of the interest you pay at closing, some of which may be included in your closing costs, is tax deductible. If you choose to pay loan discount points or origination fees, you can also deduct these, even if the lender or seller is the one who actually covers these closing costs. In other words, by buying a home and negotiating a seller-paid closing cost scenario, you can deduct money you didn't even spend.
Mortgage Interest Deduction
As a homeowner, you can deduct your mortgage interest. In addition, should you take out a home equity loan in the future to improve your principal residence; you can also deduct the interest on that loan. Because of the way loans are prorated, you are able to deduct most of your mortgage costs in the first few years that you own your home.
Now this particular deduction has an important benefit. You are allowed to deduct interest on up to $100,000 of mortgage debt in addition to the mortgage purchase loan. So, if you choose to take out a home equity loan, you can deduct that money. This allows you to shift your debts from your credit cards, with their high interest rates, to a low interest rate home equity loan, and use the interest on that loan as a tax deduction. Without these real estate ownership tax benefits, you would be stuck with non-deductible interest.
Now, when the time comes to sell your home, chances are it will have increased in value. When you sell that home, you can pocket up to $250,000 for an individual and $500,000 for a married couple without paying federal income tax, provided you have lived in the house for two of the past five years. If you buy a fixer upper, you can earn substantially in this way. This capital gain exception is hard to find with any other investment type.
Watson Realty Corp to Find a Home
As you can see, real estate ownership tax benefits are substantial. If you are interested in learning more about these real estate ownership tax benefits or are ready to start the search for a home, contact Watson Realty Corp.
Our staff and our team of real estate professionals can provide you with information about the local area. We know buying a home is a big decision. With our help, home ownership can be a reality for you.
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