Home ownership is a big step in life. Many of us dream about having our own home one day. Nowadays, people discuss the potential risks of owning a home. While every long-term decision carries financial risks, there are numerous advantages to becoming a homeowner as well.
The experts at Upkeep Media Inc. recommended to focus on the financial benefits that come with homeownership. Only then will you be willing to take the plunge. It is in fact a big decision. A very important one as well. This is exactly what we’re going to cover.
This concept is also called home equity. In simple terms, it’s the difference between the debt on your mortgage and your home’s value. The latter is typically seen as the market price.
Owning a home is definitely an investment that keeps getting better over time. As your home’s market value grows, your equity gets stronger because there’s less of the money going toward interest.
Capital gains exclusion
Selling your home allows you to benefit from the capital gains exclusion. This law enables you to keep all the profits because you won’t have to pay the capital gains taxes.
The limit is $250,000 for single people and $500,000 for a married couple. Do keep in mind that this exclusion works only for your actual home. Selling vacation homes and secondary residences don’t reap any benefits from the law.
Buying a home should be seen as a long-term investment. The actual real estate value increase depends on your location and numerous other factors. Looking at the averages across the nation, though, shows how profitable owning a home actually becomes.
On average, people have seen their investment grow anywhere between 5% to 7%annually. Compare buying a house to having your money on a savings account. Even if you’ll sign up for a high-yield savings account, you can’t use the money while it’s growing. But you can live in a house while it’s generating extra value!
Renting a place comes with the fear of the unknown. And it’s not your landlord’s evil scheme, being clueless and uncertain about the coming years is just part of the tenant life.
One day something may change and your landlord could easily decide to raise the rent. There are so many ways how owning a home allows you to have a more reassured outlook on the future.
Knowing your mortgage terms is just one of the many aspects of this. For example, your home appliances at your rental might not be big on saving energy. In your own home, you can choose home appliances that will save you money compared to the ones that are ferociously energy-consuming.
When it comes to freedom, you just can’t compare a rental space to your own home. There’s an endless variety of ways you can customize your house or apartment.
Most landlords don’t allow any significant alterations to the interior design, let alone allow serious construction work being done. Having your own home and taking pride in it might even motivate you to become financially more responsible.
Homeowners know that sometimes unexpected repair works come up, which means that you have to save for bad surprises. Saving, and generally being responsible with your finances, leads to an overall improvement in your budget.
Tax deductions are simple. After buying a new home, you are able to deduct some ownership expenses from the paid taxes. You should know that home-equity loans and even the home-equity lines of credit are deductible should the funds be used for home improvement.
That said, theTax Cuts and Jobs Act was passed in December 2017, which substantially changed tax deductions from home ownership. For example, the limit used to be $1,000,000 in mortgage debt alongside $100,000 in home-equity debt.
Today, the limit is $750,000 for mortgage debt, including first and second homes. Plus, the amount covers any home-equity loans or credit. And SALT deductions used to be practically unlimited, but now the limit is $10,000.
So, what are the financial benefits of home ownership?
Home ownership comes with many financial benefits. In many cases, it’s a successful long-term investment that gains equity as time passes. The tax deduction law has changed, but it still offers a fantastic incentive for all future homeowners.
Compared to renting a house or an apartment, having your own home gives you more freedom and reassurance when it comes to planning your finances. And should the day arrive when you want to sell your home, you can be sure that you’ll reap benefits from the capital gains exclusion law as long as it’s your primary residence.