Buying new house results in a lot more than just a great new place to live. Over time, that house becomes a home full of wonderful, warm memories of times spent with family and friends. What’s more, your investment comes with several tax and financial advantages, especially if financing was used for the purchase. Here’s why new homeowners should consider themselves fortunate, in more ways than one.
It's less expensive than renting
For some people, renting makes more sense than buying, especially if they foresee moving a lot in the future. However, for those that are ready to settle down and live someplace more long-term, buying is the way to go. Buying is, in the long term, far less expensive than renting, especially if interest rates remain low and the homeowners live there for a few years.
It produces wealth
Homebuyers should consider a mortgage like a mandatory savings plan. It's an investment that will build wealth over time, especially for those that avoid overextending themselves financially. Making a wise home purchase - that being a well-built house in an excellent location - can be a smart financial move. Slowly but surely, the investment will produce wealth over time.
It builds equity
Every mortgage payment you make not only chips away at the amount you owe on your new home, but it also builds equity. Over time, as you pay down your mortgage, a more significant portion of your payment is applied to the principal, making the home’s equity grow even larger. Extra payments made toward the principal will make your equity increase even faster.
Mortgage interest tax deduction
A favorite financial incentive advantage for owning your own home? You can typically write off the interest payments you make on your mortgage. Mortgage companies send homeowners a 1098 tax form which shows the amount of interest paid on the loan the previous year. Depending on the homeowner’s tax situation, they can deduct some, if not all of that amount on their taxes. Also, if the house was purchased in the previous year, any interest paid as part of the closing costs can be included. Check with your tax preparer to be sure as to how much you can deduct as there can be a cap.
Property tax deduction
Some people pay their property taxes through their mortgage lenders via an escrow account. Others pay their municipality directly. Either way, the money paid for those taxes is also deductible. If paid through a lender's escrow account, the amount will be shown on the 1098 form. If paid directly, homeowners should keep records of the check or automatic transfer used to pay the bill.
Private mortgage insurance (PMI) tax deduction
For those that put down less than 20% equity on a new home, the mortgage lender is likely to require private mortgage insurance on the loan. The advantage for the homebuyer is that the private mortgage insurance payments can be deducted, but only within certain income thresholds. Check with your tax preparer for eligibility.
Aging in place tax deductions
For those that expect to live in their new home for a long period of time, they can deduct certain costs that will assist with aging in place. Examples are grip bars in the bathtub and shower, lowered cabinets and electrical fixtures for ease of accessibility, and ramps and other amendments for better wheelchair accessibility.
Home office tax deductions
More people are working from home these days. Whether you own your own small business or work a full-time, work-from-home position, a home office can be used as a tax deduction. It includes home office expenses and the space that is used. Those with home offices can deduct $5 per square foot (up to 300 square feet) with a maximum deduction of $1,500. They can also deduct a percentage of the home’s utility bills, homeowners insurance, HOA fees, general maintenance and repairs, and more. Talk to your tax professional to find out the maximum amounts your particular financial situation allows.
Of course, for the most accurate tax advice, please be sure to speak to a licensed accounting professional -- but it’s easy to see how buying a home at the right time in the right place can be a wise investment. We’ve got some fantastic new homes under construction right now here at Harbor Club. Come see them for yourself. Start planning your visit to not only discover the valuable ROI in the homes we build, but the rewarding life you can create in our award-winning, Southern Living-Inspired Community. Contact us today.