Homeownership has many benefits. Just ask the 64% of U.S. residents who own their own home. In addition to having a place of their very own to call home, homeowners enjoy major tax deductions each year while building wealth through equity. You too can take advantage of these benefits.
Major Tax Deductions
Want to lower your tax bill? Purchase a home! Homeownership offers many tax benefits that can chip off a huge chunk of your tax obligation each year. Following are just a few tax deductions that you can take advantage of when you own a home:
Closing Cost Deduction: You can get a huge tax break your first year of home ownership by claiming the origination fees and closing costs (paid by you or the seller) on your tax return.
Mortgage Interest Deduction: Each mortgage payment you make includes an interest payment, which you can deduct from your tax obligation.
Property Tax Deduction: The money you pay toward property taxes is deductible as well.
As you can imagine, these tax deductions really add up. Depending on your tax bracket, you can expect to shave hundreds of dollars from your tax debt.
According to the Federal Reserve, the average net worth of a typical homeowner is about $200,000 higher than that of a renter. While the net worth of homeowners varies among demographics, the message is clear: Owning a home builds wealth. But how?
Homeowners build wealth in a variety of ways. First, homes can appreciate in value, which means a home purchased today may be worth more in the future. What’s more, buying is often less expensive than renting, especially after the mortgage is paid off. All of this serves to secure a homeowner’s future financial security.
Capital Gains Exclusion
The capital gains exclusion is perhaps the greatest financial advantage of owning a home. If you sell a home, and it had been your primary residence for more than two years, you don’t have to pay taxes on any capital gains you earned through the sale, provided those gains don’t exceed $250,000 ($500,000 for a married couple). This means you can build wealth through real estate while avoiding taxes.
Home ownership is a powerful tool used for building household wealth and obtaining long-term financial security in the U.S. In fact, home ownership is the primary and most valuable asset that many families hold. What’s more, homeownership poses many immediate, short-term benefits that help families afford life in an increasingly difficult housing market.