As I was out reviewing a property for a client this afternoon I saw the above sign and was reminded that some of the benefits of home ownership come at tax time.
The US Tax Code lets you take deductions for the interest you pay on your mortgage, the property taxes you pay, and some of the costs involved in buying your home. Some buyers even change their withholding deductions to increase their monthly cashflow.
Thanks to the Mortgage Forgiveness Debt Act of 2007, your mortgage insurance is now also deductible. So if you buy a home with less than 20% down with a conventional mortgage you can deduct your PMI (private mortgage insurance) until 2010 if your adjusted gross income is $100,000 or less.
Regardless of short-term ups and downs in the housing market such as we are currently experiencing, housing is historically a solid long-term investment. Whether you pay rent or pay your own mortgage, you need a place to live. Money paid for rent is money you will never see again, but mortgage payments let you build equity ownership interest in your home in addition to the tax savings.
Unlike rent, fixed rate mortgage payments don’t go up over the years so your relative housing costs may actually decline the longer you own your home, even if property taxes and insurance costs may rise.
Your tax benefits continue even through the sale of your home when that time comes. Usually when you sell an asset you have to pay capital gains on it. Since 1997, when you sell your homestead you get to keep your capital gains tax free up to $250,000 for an individual or $500,000 for a married couple.
