Top Homeownership Tax Benefits

Home prices in Phoenix continue to demonstrate a healthy, growing market. In fact, during the spring, Phoenix home prices experienced a 6.2 percent rise, besting the national average, 5.3 percent, by nearly an entire point. By the end of spring, the median home price jumped 5 percent, outpacing the same period the year prior by a remarkable 10 percent. The median property price increased to an impressive $223,000 in the Valley of the Sun as inventory levels shrunk. Combined with refined credit scoring by FICO and near-historically low interest rates, buyers took full advantage of becoming homeowners. However, the phenomenon is not just about the appreciation or even saving thousands of dollars over the life of a 30-year fixed rate mortgage, but also, the tax benefits.

Top Homeownership Tax Benefits

It's no secret that homeownership is far better than renting, but, too many people believe that it's simply out-of-reach. In the immediate years after the housing crash and national economic downturn, it's true lenders were very risk adverse. Saddled with hundreds of millions of dollars in defaulted home loans, small business loans, credit card accounts, and other debt instruments, banks were no longer eager to lend. However, that's changed significantly.

If death and taxes are the two true givens in life, there probably should be a third: the bucketful of tax breaks Uncle Sam throws out every year to encourage more Americans to buy a home. From being able to write off virtually all mortgage interest, not only for your primary home, but for a second home as well — up to $1.1 million of debt (when you include home-equity loans) in most cases, to being able to write off your property taxes, homeowners have opportunities for dozens more federal income tax deductions than renters. --Market Watch.com

Now, there are more options available and interest rates are expected to stay near historic lows in the near term. Of course, this probably won't last, so, now is a great time to enter the real estate market. For first time homebuyers and those who are relocating, upsizing, or downsizing, the opportunity to own a property has never been so rewarding. Owning a home means locking in your housing costs and enjoying large asset appreciation. It also means being able to take advantage of certain homeownership tax benefits:

1. Mortgage interest deduction. Perhaps the biggest federal tax benefit is the ability to deduct your mortgage interest. Since this is such a large part of your home loan for the first years, this is a very welcome benefit.
2. Closing cost deductions. In the first year of buying your own home, you are allowed to deduct certain closing costs, regardless of who pays them. Write-off origination fees or points, which generally account for 1 percent or more of your closing costs.
3. Property tax deduction. You can also write-off your property taxes on your primary residence. In addition, you can do the same with a vacation home. This is quite helpful in offsetting the cost of owning a home.
4. Home equity line deduction. If you take out a home equity loan or line of credit, the interest paid on it is also tax deductible. This is great because you can consolidate your credit card debt, pay a lower rate, and write-off the interest.
5. Capital gains exemption. After you live in your primary residence for two years, you can take advantage of the capital gains exemption when you sell. The limit is $250,000 for single people and $500,000 for married couples.

Another benefit of homeownership is that it really pays-off over time. Sure, renting is less expensive for short terms, but, that savings quickly disappears after just a few years. Now is the time to begin the process and on a path to financial security. Take a look at the current homes for sale in Phoenix and let us help put you on the right path to homeownership.