Tax Deductions Available to Homeowners
Interest: Interest on home mortgage debt may be deductible. When deductible, the interest is deductible in the year that its paid. Homeowners’ insurance: Homeowners’ insurance is not deductible unless your client runs a home business, or if the home is a rental property. Property Taxes: Real property taxes are deducted in full in the year they are paid. The “SALT” deduction is capped at $10,000 for the tax years 2018-2025. Home Equity Loans: Interest on home equity loans taken for home improvements may be deducted in the year its paid. Emphasize Benefits of Homeownership Pride of ownership: Owning one’s home and maintaining and improving it provides security, a built- in savings plan, and a sense of accomplishment. Real estate can be passed on to heirs; an apartment can’t. Pets aren’t an issue, and there’s no one telling you what you can and can’t do inside or outside the home. Hedge against inflation: Neither the principal nor the interest rate of a fixed rate mortgage change over 30 years. On the other hand, rental increases are common, and a 4% to 6% increase per year isn’t unheard of. Some areas cap rental increases, for instance, at 10%. But if your mortgage rose from $2,000 to $2,200, you’d feel it. In some areas, mortgage payments are less expensive than rent. Leverage: Where else can you obtain appreciation on 100% of an investment when you only own 10% to 20% fo it? Let’s say you’re deciding between financing a home and placing $20,000 in the bank. The bank may return 2% interest on your investment. But if you use $20,000 as a down payment on a $200,000 home, and housing prices rise 2%, you’ve just increased your return by $4,000. Tax Advantages: Taxpayers who itemize may be able to take advantage of mortgage interest deduction. Property taxes are deductible within limits. Homeowners who sell can also take advantage of the capital gain exclusion- up to $250,000 home for an individual or $500,000 for a married couple. Stability: In addition to stable housing payments, residents don’t have to worry about being ousted by a landlord who decided to convert apartments to condos. Since homeowners tend to remain in place longer than rents, its possible to build relationships with neighbors and create a sense of community.
Equity Loans: A home loan is more affordable than credit card debt.
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