LOS ANGELES—Buying a home is always an important decision for a family. The advantages are many for those who plan to purchase their first home or their latest home. There really is no debate when it comes to buying a home or renting, when it comes to it. Buying is always best.
In fact much of our economy is built on the concept of homeownership and the benefit of providing much of the public with a commodity that can in turn be used to spur economic growth by such things as creating loans, more construction, added jobs and a myriad of economic activity.
It’s no wonder the real estate market is on the upturn despite a sluggish economy overall. The tax advantages of homeownership are just one of the reasons why many opt for buying a home instead of renting. As a renter, you are eligible for a renter’s tax credit of $60 a year for a single person and $120 for a married couple.
On the other hand, those who own a home will get a tax benefit for the property taxes and the interest on the mortgage. Your biggest tax break will be on the house payment you make each month since the majority of the mortgage payment at the beginning of your loan will go toward the interest which is tax deductible, unless the loan is in excess of $1 million. It’s one of the downsides of owning a mansion.
Thankfully, if you refinanced the home to get some extra cash for unforeseen expenses, or took out a home equity line of credit, the Internal Revenue Service allows you to again, deduct the interest from your taxes.
Under IRS rules, equity debts of $100,000 or less a fully deductible, but the remaining amount on your original mortgage could restrict your tax benefit, making things more complicated if you excessively leverage your home. So consult your tax preparer for more specific information.
If you paid points in order to get a better loan, then the IRS allows you to deduct the points if the loan is to purchase or build your main home. But be sure your loan meets all of the qualifying requirements before you deduct all the points.
Naturally, you’re allowed to deduct all of your home-related expenses, which means that expensive re-roofing work you had done, along with the new tub in the bathroom will be fully deductible.
It’s easy to see why homeownership is so advantageous compared to renting, yet I’ve seen many dump their houses on the bank even though they could easily make their mortgage payments, they just felt it was no longer beneficial to maintain the house since it was worth less than what was owed on it at that time. That is a bad move.
Why dump it when you can afford to keep it. So don’t lose it. It’s like a stock. Its value will go back up if you are patient. In the meantime, you still get the tax benefit. Housing is always a war of attrition. You make your gains on housing on the long term not the short term. But if you’re going to live in a house, then enjoy it. A house is a commodity so live in it and relish in it. It’s your home.
Unfortunately, many of us are unwilling to wait. We all want it now. And in real state, it pays to do the opposite. Patience is the key to success and profits. Despite a precipitous drop in the market just three years ago, real estate is back and getting better.
Homeownership should be the goal of all renters despite their situations. Owning a home not only gives you comfort and security, but it also opens up an avenue for a future home purchase as well enable you to build equity and access to credit for important purchases.
David Rosenfeld is a Real Estate broker and president of Advantage Real Estate, a Real Estate and investment firm in Santa Monica, and a Rotary Club member. He has more than 20 years experience in commercial and residential property investments and financial counseling. He can be reached at 310 450-4488, at firstname.lastname@example.org at www.advantage-realestate.com.
By David Rosenfeld