Tax Benefits Make Homebuying A Sound Decision
Now that we're over home flipping, let's get back to the realities of the true profits of owning a home. With rare exception (2007 - 2009), homes have increased in value nationwide one to two points above inflation levels, which is good, but it's not an incredible return.
That’s why the government offers incredible home buying subsidies, so you can live better for less than renting when you own your own home. When you move from a rental, you leave with nothing, not even a tax deduction, but when you move from a home you owned, you can take your equity with you.
Did you know that when you pay points to take out a mortgage, whether you or the seller paid, you can deduct it? Hello, $1,000 or more!
Federally insured loans are another benefit. With home prices rising more quickly than incomes in many areas, qualifying for a conventional loan has been a challenge, but conforming loan limits may be permanently raised, allowing people to buy higher cost homes using FHA, Fannie Mae and Freddie Mac guidelines.
One of many benefits is being able to deduct property taxes from your federal income tax return. If you're a renter, you're paying someone else's property taxes and getting zero deductions. In effect, you're throwing two percent of your net income away. And that doesn't count the equity you're building for your landlord.
The government believes that homeownership means more stability for communities. So, whenever the economy goes in the tank and homeowners lose homes in greater numbers than usual, the government pulls out a tax benefit that makes it irresistible to own a home.
Usually when you sell an asset, you have to pay capital gains on it. When you make money, you pay taxes. But those concepts went out the window with the Tax Relief Act of 1997.
Before then, homeowners had a one-time lifetime capital gains exclusion when they sold a homestead. After 1997, you could sell your homestead and keep the capital gains up to $250,000 as a single or $500,000 as a married couple.
In addition, your mortgage interest is tax deductible, up to $1 million in mortgage debt. Thanks to the Mortgage Forgiveness Debt Relief Act of 2007, you can also deduct your mortgage insurance interest.
If your household makes an adjusted gross income of $100,000 or less, you can deduct PMI on your tax return. Families with incomes between $100,000 and $109,000 are eligible for a reduced deduction, so if you bought a home without 20 percent down or excellent credit, you can now deduct your PMI until 2010.
And that's just a few of the federal benefits, folks. We haven't even begun to talk about hardship benefits, property inheritance benefits, senior citizen and veteran tax relief, or what your state or local community offers in home buying incentives.
Benefits could get even better, as government evaluates the success of programs such as Cash for Clunkers and the first-time home buyer stimulus.
The bottom line is that while homebuying is subsidized by the government, you'd be a fool not to take advantage. Just buy within your means, please.
Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."
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