Even in today’s economy, it’s a fact that homeownership remains one of the best investments you can make.
If you're a homeowner, perhaps you identify with budgeting, living paycheck to paycheck. In fact, it’s cheaper nowadays to buy a home instead of renting.
Uncle Sam has thrown you an amazing tax shelter that's beyond compare. You may deduct the mortgage interest paid on your loan and deduct the property taxes paid to your state. These deductions are based on you itemizing your deductions on your tax return. And if you are not a homeowner yet, this tax benefit is significant enough to make you look seriously at home ownership. There are of course, exceptions to every deduction. One of the complexities of home ownership tax deductions surrounds points.
Points are one type of fee paid at closing to your lender. If you pay points when you buy your new home, these may be deducted in full in the year of purchase. However, if you refinance your loan, the points must then be deducted over the life of the new loan.
Appreciation
As a general rule, homes will appreciate about three to five percent a year. Now with our current economic downfall, this obviously isn’t the case, but if you wait it out, the real estate market is going to come back like a rocket. Homes will begin to appreciate again and this is why it’s so important to take advantage of low prices now.
Some years appreciation will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region. You might say five percent may not seem like that much at first but look around at financial institutions and tell me where you can do better?
- Say you bought a $250,000 house with a comfortable mortgage. Suppose you put as little as five percent down – that would be an investment of $12,500.
- At an appreciation rate of 4% annually, a $250,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $12,500. Your annual "return on investment" would be a whopping (80%) eighty percent.
- Additionally, you are making mortgage payments and paying property taxes, along with a couple of other costs. And remember those tax deductions? Well, with all the deductibles you’re eligible for, the government is essentially subsidizing your home purchase.
Homeownership's Greatest Tax Advantage
Probably the greatest advantage of home ownership occurs when you decide to sell your home. If you have owned and lived in your personal residence for two out of five years, you can sell the home and not be taxed on a profit up to $250,000 for singles and $500,000 for couples.
As you can see, homeownership has its perks and just about every homeowner receives a tax refund every year. Yes! You actually save money while Uncle Sam hands over a check, just because you bought a home. Isn’t the American Dream great?
- If you can, remodel/update the kitchen and master bathroom. These two areas have a big impact on home buying decisions.
- Strategic renovations impact value and your bottom line. Don't spend more money to renovate the place than you can recapture in value on the sales price.
- Remember, you can make a HUGE difference in perceived value by adopting just a few of these strategies.
