If you’ve been living in a rental property or apartment, you may not have given much thought to buying a new home. Sure, friends and relatives bug you about getting your own place, but you haven’t necessarily seen a good reason to do so.
Buying your own home, however, has several distinct benefits, each of which is appealing in its own right. Here are just a few:
Appreciation
While real estate values do cycle, overall real estate grows in value. Over the decades, real estate appreciation is consistent. Home ownership can be something of a hedge against inflation.
Tax Considerations
Buying a home has some huge benefits in terms of your taxes. As long as you owe less on your mortgage than your home is worth, you can deduct your interest from your tax return. This can add up to big bucks, as the largest portion of your mortgage payment goes to interest.
You can also get another tax benefit from buying a new home. As long as you have lived in a home for two of the previous vie years, you can reduce your capital gains. Specifically, you can exclude up to $250,000 for an individual or up to $500,000 for a married couple. There is no requirement to buying a replacement home, and there is no age requirement. You can do this every two years, which means you could literally buy and sell a home every two years (under those amounts) tax free.
In addition, if you get more profit than the allowed exclusion when you do sell your home, the profit is considered to be a “capital asset,” which gets preferential treatment for tax purposes.
Finally, you can also deduct property taxes for your home.
Equity
One of the best reasons to buy a home is to build equity. Every month when you make your mortgage payment, part of the payment goes to the principal. As you pay more of your mortgage, you build up a difference between what you owe on your loan and what the home is worth.
Eventually, you can use that equity for a number of purposes. For example, you can take out a home equity loan, which will allow you to get cash for home improvements, medical bills, start a business or even pay off credit cards.
