Tax Advantages of Home Ownership

Tax Advantages of Home Ownership

Owning a home can save consumers thousands of dollars in taxes.* Under federal law, homeowners may deduct the interest paid on a mortgage loan.

Homebuyers often overlook or underestimate the tax benefit of deducting interest paid on a home load. And, considering its long-term impact, interest rate deductions should be a determining factor when purchasing a home.

The Specific Tax Advantages of Home Ownership are Based upon Several Factors:

·Annual Income

·Federal Income Tax Bracket of a Household

·Amount and Interest Rate of the Mortgage Loan

·Annual Property Taxes Paid on the Property

The mortgage interest deduction is highest in the initial years, declining over time with the loan balance. The first few years of home ownership often provide the greatest tax benefits.

Over Time, Other Tax Benefits May Apply

·Interest costs on a second mortgage or home equity loan (with a principal balance of up to $100,000).

·Capital gains taxes on the sale of the home can be avoided if the owner had lived in the home at least two of the last five years before the sale.

·If this is the first time you have owned property, there may be additional deductions by switching from a standard to an itemized tax return.

Individuals are encouraged to consult a tax advisor about appropriate federal and/or state income tax benefits and deductions. Renters thinking about buying a home should also consult a tax advisor about the benefits of home ownership.

Buy vs. Rent Comparison**

This chart shows a cost comparison for a renter and a homeowner over a seven-year period.

1. The renter starts our paying $800/month with annual increases of 5%.

2. The homeowner purchases a home for $165,000 and borrows $150,000 for 30 years with a monthly mortgage payment of $1,000.

3. In 6 years, the homeowner´s payment is lower than the renter´s payment.

4. With the tax savings of home ownership, the homeowner´s payment is less than the rental payment after three years.

Years	Rent Pmnt	Mort-gage Pmnt	Pre Tax Monthly Diff.	After Tax Savings	Yearly Diff.	After Tax Savings
1	800	1000	-200	-50	-2400	-600
2	840	1000	-160	-10	-1920	-120
3	882	1000	-118	+32	-1416	+364
4	926	1000	-74	+76	-888	+912
5	972	1000	-28	+122	-336	+1464
6	1021	1000	+21	+171	+252	+2052
7	1072	1000	+72	+222	+864	+2664
8-30

*Consult with your tax advisor for guidance relating to your specific circumstances.