Reasons to Own Your Own Home
Pride of ownership is the number one
reason why people yearn to own their home. It means you can paint the walls any
color you desire, turn up the volume on your CD player, attach permanent
fixtures and decorate your home according to your own taste. Home ownership
gives you and your family a sense of stability and security. It's making an
investment in your future.
Although real estate moves in
cycles, sometimes up, sometimes down, over the years, real estate has
consistently appreciated. The Office of Federal Housing Enterprise Oversight
tracks the movements of single family home values across the country. Its House
Price Index breaks down the changes by region and metropolitan area.
Many people view their home investment as a hedge against inflation.
Home ownership is a superb tax
shelter and our tax rates favor homeowners. As long as your mortgage balance is
smaller than the price of your home, mortgage interest is fully deductible on your tax
return. Interest is the largest component of your mortgage payment.
- Property Tax
IRS Publication 530 contains tax information for first-time home buyers. Real
estate property taxes paid for a first home and a vacation home are fully
deductible for income tax purposes. In California, the passage of Proposition 13 in 1978
established the amount of assessed value after property changes hands and
limited property tax increases to 2% per year or the rate of inflation,
whichever is less.
- Capital Gain
As long as you have lived in your
home for two of the past five years, you can exclude up to $250,000 for an individual
or $500,000 for a married couple of profit from capital gains. You do not have
to buy a replacement home or move up. There is no age restriction, and the
"over-55" rule does not apply. You can exclude the above thresholds
from taxes every 24 months, which means you could sell every two years and
pocket your profit--subject to limitation--free from taxation.
If you receive more profit than the
allowable exclusion upon sale of your home, that
profit will be considered a capital asset as long as you owned your home for
more than one year. Capital assets receive preferential tax treatment.
Reduction Builds Equity
Each month, part of your monthly
payment is applied to the principal balance of your loan, which reduces your
obligation. The way amortization works, the principal portion of your principal
and interest payment increases slightly every month. It is lowest on your first
payment and highest on your last payment. On average, each $100,000 of a
mortgage will reduce in balance the first year by about $500 in principal,
bringing that balance at the end of your first 12 months to $99,500.
- Equity Loans
Consumers who carry credit card
balances cannot deduct the interest paid, which can cost as much as 18% to 22%.
Equity loan interest is often much less and it is deductible. For many home
owners, it makes sense to pay off this kind of debt with a home equity loan. Consumers can borrow against a
home's equity for a variety of reasons such as home improvement, college,
medical or starting a new business. Some state laws restrict home equity loans.