When I ask renters why they don't own a home, I hear the same excuses over and over again:
"I don't see the benefit"... "It's too expensive"... "Renting is cheaper"... "[Insert your excuse here]"
This is fear talking.
Every year, millions of people decide to continue renting without exploring the benefits of owning property. They mistakenly think that it'll be more expensive than renting and that it'll keep them stuck in one city--tied to a home they don't love. This is fear talking.
Allow me to share a detail that may surprise you. Owning a home is often less expensive than renting – even without taking advantage of the 3 money-saving tips below. It is common for renters to ask what's the big deal with homeownership, but I'm not surprised. Unfortunately, tax savings and benefits are often unknown to new and prospective home owners. But the savings are real! Let's break it down...
Here are 3 ways
homeownership saves you money
1. Benefit from tax deductions
Homebuyers get many tax benefits that renters don’t-- and that's a fact. These tax breaks come in the form of critical deductions that lower your tax bill. With a good accountant, homeowners can benefit from deductions on: the interest they pay on a mortgage, the points they pay on a mortgage, the cost of all property taxes, and even the cost of insuring their mortgage.
Wondering just how much homeowners save on their taxes? Using 2012 IRS data, HouseLogic discovered that a homeowner who took the average for each of four tax benefits would claim $15,871 in home-related deductions (if he or she itemizes). Would you have a problem with some extra money in your pocket?
2. Claim more exemptions with your employer
When you move into your own home, you'll be able to claim more exemptions with your employer immediately. That means you will see an instant increase in your monthly take-home pay, because less tax will be withheld from your monthly paycheck. Be aware that this doesn't change your total tax burden - it simply increases your take-home pay.
If I lost you let's take a step back. As you may know, the W-4 form you fill out at work asks employees to list their allowances so their employers can withhold the proper amount from their paycheck. When people see the word "allowances" they typically think about the people that depend on their income (kids, spouse, a parent, etc). The key here is that allowances are not only dependents. Allowances also include deductions that can be taken for other expenses, including mortgage interest and property taxes. To increase your cash flow, you can reduce the amount of income tax withheld each pay period by claiming special withholding allowances for every deduction you intend to take when you file your federal return. Now let it be known that I am not an accountant nor a tax preparer. This information should not be acted upon without consulting an accountant, or financial advisor, familiar with your particular situation. What you should do today is use this information to jumpstart your research into home-related exemptions. Once you complete your due diligence, share what you learn with your tax-preparer and start saving some money!
3. Avoid paying capital gains tax when selling your home
Taxpayers who sell their home must generally pay capital gains tax on any profits made on the sale. But homeowners may exclude from taxable income up to $250,000 ($500,000 for joint filers) of capital gains on the sale of their home if they satisfy certain requirements. What are these? Homeowners must have maintained the home as their principal residence in two out of the preceding five years, and they generally may not have claimed the capital gains exclusion for the sale of another home during the previous two years. The congressional Joint Committee on Taxation estimated that the exclusion provision saved homeowners $29 billion in income tax in fiscal 2016. How great would it be to benefit from this tax benefit?
In short, it makes sense to OWN
The “Power of Ownership” and being able to do what you want in your own home without having to ask your landlord are just two great benefits. Add to that the actual savings through tax benefits and other exemptions and you'll piece together how people save money with homeownership--renting doesn't make any sense. If you account properly for the tax savings, owning a home can cost up to 30% less than renting, and sometimes your savings can be even greater.
If you are still thinking that you can’t afford to own because you have been turned down for financing before, discover an easier homeownership process through Rocena!
Knowledge is power and that is what we bring to you. Our program is specifically designed for you, because we believe in you and believe that you have a right to own. Send us an email today and let us guide you to homeownership.
