Rohnert Park Real Estate Renting vs. Owning
Owning a home is the American Dream, but renters are often apprehensive about taking on the financial responsibility of home ownership. Along with the pride, security and sense of community that comes from owning a home, real estate professionals remind taxpayers that owning a home rather than renting also offers financial benefits.
► Deductible Property Taxes and Interest: Most homeowners can deduct property taxes and interest paid on their mortgage every year of ownership. In fact, the tax code allows homeowners to write off interest on first and second mortgages -- including equity lines and loans -- up to $1.1 million worth of the overall mortgage debt. That is expected to amount to $72.6 billion in tax deductions this year alone.
► Borrowing Against Equity: Homeowners can borrow against the equity they have built up in their homes. Equity from a home can be used to improve property, buy a car or pay for education. Homeowners may also have the ability to deduct the interest from their federal taxes. Renters never have this opportunity.
► Real Estate Tax Exemption: Depending on the state, certain real estate tax exemptions apply for homeowners who meet specific criteria. Homeowners should check with local assessors and tax consultants to see if any exemptions apply to them.
► Yearly Home Appreciation: Although it is not a tax advantage, homeowners build equity and realize yearly appreciation of their property over time. Renters receive no financial return on their monthly rental costs.
► Federal Government Changes: During the last few years, the federal government has made owning a home even more financially favorable. Recent improvements enacted include the following:
In 2005, the 15 percent tax bracket for married couples increased from $46,700 to $55,900, so that many families in the 27 percent bracket dropped back a level allowing for more tax savings.
The federal government has recently relaxed rules on IRA and 401(k) retirement accounts, permitting first-time homebuyers to tap into their retirement funds for their down payment without paying penalties on early withdrawal.
The federal government now offers exclusions of capital gains on sales of principal residences, which has resulted in $22.9 billion in tax benefits over the last several years. This category has ballooned since 1997, when Congress first sanctioned tax-free treatment of up to $250,000 (for single filers) or $500,000 (for married joint filers) on home-sale profits. The exclusions are available on homes owned for just 24 months, and can be used without limit every 24 months.
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