Rent or own?

One of the principal attractions of home ownership is the fact that it provides a very significant set of financial benefits.While this is true at any time of year, many of them become particularly obvious during tax season, so this is a good time for a quick reminder.

The most obvious benefit is the range of tax benefits available to home owners.These include:

• Mortgage interest deduction – this can often provide a very large deduction, particularly in the early years, as for many mortgages interest is the largest component of the monthly payment.
• Similarly, interest on a home equity loan or line of credit can be deducted.One tactic that can be used to maximize this benefit is to transfer credit card debt to a home equity loan, thus benefitting from both a lower interest rate and the tax deduction.
• Property tax deduction – on both primary residences and vacation homes
• Closing cost deductions – this can also sometimes provide significant savings, as it allows you to deduct origination fees, which are often 1% or more of the loan amount.
• Capital gains exclusion – after two years of primary residence in a home, profits on a sale (up to specified limits – currently $250,000 if single, $500,000 for married couples) are excluded from capital gains tax.

Another clear-cut consideration is the advantage of buying over renting.Although in some cases it can be cheaper in the short term to rent than buy, always remember that all a month’s rent buys is a roof over your head for that month.The monthly mortgage payment, on the other hand, steadily increases your equity in the house and thus buys you a tangible continuing asset.

Which is a good lead-in to another, slightly less obvious, benefit.A mortgage can be seen as a savings plan by another name: that regular monthly payment increases your ownership stake.Thinking of it this way may help you feel better about that regular monthly payment; and though it shouldn’t be your only savings plan, it can provide a backstop by forcing you to set aside that regular amount, even at times when other savings may be hard to manage.

At the risk of stating the obvious, I’ll underline the implications of that last point: home ownership is a path to growing wealth over time.  our stake in the home will gradually increase, giving you an ever-larger share of the home’s value. The benefits of this are most obvious in a rising market, but the tax benefits mentioned above, combined with the use of the home itself, can make it advantageous in a stable market and help counteract the effects of a declining one.

Also, if you own a home with a pool you don't have to share it with all the kids in the neighborhood.