It is impossible to quantify just how much happiness you’ll feel once you own your own home, but pride of ownership is a very real thing. Likewise, the peace of mind you can only gain from knowing you will never be evicted or displaced at the whim of a landlord is nothing to sneeze at. And amazingly enough, people who own their own homes live longer than those who rent!
All of this is to say that homeownership isn’t strictly a financial investment. It is first and foremost about improving your quality of life, as well as providing stability to any children you’ve been blessed to raise.
That said, home buying does go hand in hand with multiple financial benefits. Let’s explain what you stand to gain by becoming a homeowner!
Mortgage Interest
Do you plan on taking out a mortgage to purchase your home? Then you can also plan on decreasing your taxable income by deducting mortgage interest. As of January 1st, 2018, the Tax Cuts and Jobs Act allows a single filer or married couple filing jointly to deduct up to $750,000 in mortgage interest.
Home Equity Loan Interest
A home equity loan enables you to access the capital you have already invested into your residence. If you use those funds to finance a home improvement project, then you can deduct the interest you have already paid on your home equity loan.
Private Mortgage Insurance
If you are taking out a conventional loan with a down payment that is less than 20% of the purchase price, then you may be obligated to purchase private mortgage insurance. It protects the lender in the event that you are unable to make payments. It is also deductible on your itemized tax return.
Discount Points
Some mortgages offer the option of purchasing discount points. One point is typically equal to 1% of the total mortgage. For every point you buy, you will reduce your mortgage’s interest rate by 0.125 to 0.25%. Discount points are tax deductible, which means they can help you save money in two different ways.
Property Taxes
Taxes are one of life’s two unavoidable constants. But once they own a home together, a married couple filing jointly can deduct up to $10,000 off their property taxes. If you are single (or married, but filing separately), then you can still deduct half that amount.
Home Improvements
If you purchase an improvement which significantly increases your home’s value, extends its useful lifespan, or makes it more accessible, then you will not be able to deduct its cost the same year you make the investment. But if you ultimately sell your home at a profit, then you may be able to deduct the cost of all qualifying home improvements you previously purchased.
Home Office Expenses
Do you work from home? If you have dedicated part of it to office use, then you may deduct the expenses you pay toward maintaining that space. Note that a home office deduction typically isn’t available if you work from home irregularly, or only when it’s convenient.
Capital Gains
If you sell your home at a profit – and your home served as your primary residence for two of the preceding five years – then you may exclude up to $500,000 from the capital gain tax (if you are part of a married couple filing jointly). A single filer can keep up to $250,000 of their capital gains (which effectively doubles in the case of a married couple filing separately).
Rent Savings
When you take out a mortgage, you will pay interest to the lender. It’s an inescapable reality for homebuyers in the United States. But you are building equity – something no renter will ever accomplish by cutting a monthly check to their landlord. In no uncertain terms, when you buy a home, you are keeping significantly more of your money right where it belongs: with you.
Are you looking for a new residence or investment property in the greater Detroit Lakes, MN area? Then we welcome you to contact Action Realty of Detroit Lakes today! Our experienced agents are standing by to explain all the financial incentives that come from home ownership, and help you realize them while living in a home you love!