Buy vs Rent
Thinking of buying a home? There are plenty of perks. You can decorate it as you would like; you can put in a killer home theater system or perfectly customize the walk-in closet to hold everything just the way you would like it. But there are other benefits – financial benefits. If you rented in the past, all of your money went to the landlord. None of it came back to you as a tax deduction but all of that could change.
Most of the favorable tax treatment that comes from owning a home is in the form of deductions. Here are the most common:Mortgage Interest Unless you’re the rarest of the rare situations, you can probably deduct all of your home mortgage interest. You can even deduct late fees in many circumstances.
In January, after the end of the tax year, your lender will send you IRS Form 1098 detailing the amount of interest you paid in the previous year. Also include any interest you paid as part of your closing. Lenders will include interest for the partial first month of your mortgage as part of your closing. You can find it on the settlement sheet. The money you pay in property taxes is deductible too.
As part of a new loan, home equity line or refinance, you may have paid points to the lender. Points are normally priced as a percentage of the total loan. See some pros and cons…
- A portion of your payment may go toward paying down your loan and building equity. over time you can potentially convert this to cash.
- Unlike money spent on rent, the mortgage interest and taxes are deductible on your federal tax return. interests from home equity lines are deductible too.
- Real Estate in the form of your primary residence is likely the single largest assets in your portfolio. Over the long term, appreciation can be great. Equity can be used to downsize or your home can be paid off for retirement years.
- Equity takes time and in the first few years your mortgage payment will go primarily toward interest. but don’t forget, interest is deductible!
- Tax breaks on interest and property taxes only apply when the amount of your itemized deductions is greater than your standard deduction amount. check with accountant.
- While history has shown that it is likely your home will appreciate in time, there is no guarantee.