Rohnert Park Real Estate | Renting vs. Owning

Real Estate Agent with Prudential California Realty

Rohnert Park Real Estate Renting vs. Owning

house moneyOwning 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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Comments (4)

Springfield, MA

It is a big financial jump to take on a home mortgage but in my opinion why keep paying your landlord's mortgage when you can own a home of your own?

Some people just don't have the time to do the things it takes to keep up with a home either so I guess that would make a difference. That's when I suggest a Condo! It's the best of both worlds; owning your own home but leaving it to someone else to do the outside care like the lawn and so on.

Jul 06, 2007 09:46 AM
Cindy Lin
Staged4more School of Home Staging - South San Francisco, CA
Host, The Home Staging Show podcast

I think this is a great post of convincing clients who are unwilling to sell. Great job!




Jul 06, 2007 10:03 AM
Brett Reichel
Homebridge Financial Services - Rancho Cucamonga, CA
MLO 210215

Don't forget leverage!  Remember the old saying - "you get rich by using other peoples money"?  That's how buying a house works.  If you buy a $100,000 putting 10% down, and it goes up in value 5%, you've seen your home go up in value $5,000.  Some people will say "big deal" I can do better in a mutual fund.  But, what they don't realize is that the $5,000 is a 50% return on the initial investment of $10,000.  This use of Leverage, or putting to use "other peoples money" (the mortgage), is what really makes real estate a great investment!

Jul 06, 2007 10:49 AM
Joe Adams
Major Mortgage USA/Branch Manager - Montrose, CO
One other thing is that PMI is tax deductible this year (Coldwell Banker doesn't know that) for a taxpayer under 100k a year in earnings. Of course it is for 1007 only, but I will wager a cold adult beverrage that it continues.
Jul 06, 2007 11:08 AM