Why Buy a Home?
Below are some common reasons people have for purchasing a home:
- The American dream of owning your own home; sense of accomplishment
- Renting is a waste of money
- Build long term wealth
- Tax benefits
- Can decorate and remodel the home however the homeowner wishes
Key Benefits for Buying a Home
Tax Benefits
- Less Income Tax Each Year
Interest and property taxes paid on the mortgage is tax deductible. Example: Total mortgage payment in 2008 was $16,000 ($13,000 interest, $3,000 principal) and total property tax was $4,000. This will allow homeowner to deduct $17,000 from their annual income. EXERCISE: Look up total tax due for a single individual in 2007 on IRS 1040 instructions for $80,000 income and $63,000 income. $80,000 income has federal tax of $16,518 and $63,000 income has federal tax of $12,180,a difference of $4,338, which on average, is a difference of $361.50 a month - Less Property Tax Each Year
Some towns, cities or states have principal residence exemption which allows the homeowner to pay less property tax. For example, if a homeowner occupied his or her home in Boston, MA from Jan 1, 2007 until Dec 31, 2007, then he or she would qualify to pay nearly $1,500 less property tax in 2008. Check with your local assessor or property tax department to see if you qualify for this type of benefit - Huge Profits Tax Free
If home has been occupied 2 out of the previous 5 years before selling, there is no tax on profits up to $250,000 for an individual and up to $500,000 for married couples filing jointly. For example, John Smith bought and lived in his home from July 2003 until August 2005 and then rented it out from September 2005 until December 2007. He sells the home on February 2008 for $50,000 more than his purchase price. John would not have to pay taxes on the gain since he lived for 2 years out of the 5 years from his sale date (February 2008 -> February 2003).
- Appreciation
Homes generally appreciate steadily over the long term (10+ years). If home is sold 10, 20 or 30 years from now, gains can be significant - Equity Build Up
Assuming home was purchased with a mortgage that consists of principal and interest; loan balance will be paid down over time
- Live Free
Some homes are capable of having the rooms rented out (or units, if it is a multi-unit home such as a 2-family home / duplex) in which the rental income is more than the cost of the mortgage, tax, insurance and utilities, thus allowing homeowner to live for free - Live Cheap
Homeowner will not have to make any more mortgage payments after mortgage has been paid off. Only costs will be property tax, insurance, maintenance and utilities
- Landlord Free
Homeowner does not have to worry about rents being raised, landlord checking up on the property and showing the place to prospective new tenants or being kicked out and having to find a new place to live - Self Reward
Psychological reward for achieving the financial means to become a homeowner and ability to design or decorate home as homeowner pleases
