Mark Novak

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Tax Advantages of Owning a Home Result In Savings

None of that $140,777 is returned to you, either through any type of tax savings or as an investment. Homeownership, on the other hand has numerous tax advantages over renting a home, and those advantages can help you save money. For many homeowners, part of the monthly mortgage payment "comes back to you" in tax savings. Here is an example:

You purchase a home that costs $200,000. Your down payment is $10,000(plus closing costs - appraisal fees, transfer taxes, inspections etc. Grant money is available for down payment and closing costs)finance the balance with a 30-year fixed rate mortgage at 5.5% interest. Your monthly payments (not including utilities, maintenance , insurance, etc.) are: 

 

Monthly Mortgage & Tax Payments
mortgage	$1,079
property tax (@1.25% tax rate*)	$208
Total Monthly Payment	$1,287
tax savings per month (assuming a 25% income tax bracket)
Mortgage interest tax deduction	$216
Tax deduction for property tax	$52
Total Monthly Tax Savings	$268
Total Monthly Cost After Tax Savings	$1,019

*property tax rates vary by city and county

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Owning your own home reduces your federal income tax bill by $268 a month! That is over $3,000 a year back in your pocket. Not to mention the fact that as you pay down your mortgage loan and as the value of the home rises, your equity - the wealth you have in your home - increases.

Annual Costs
	Homeowner	Renter
Total Annual Costs	$12,948	$12,000
annual mortgage/rental payment
real estate taxes	$2,500	0
Tax Deductions/Equity Builders
mortgage interest tax deduction	$2,592	0
tax deduction for property tax	$624	0
mortgage principal accumulation	$2,559	0
appreciation
no growth	0	0
loss of value*	-$2,000	0
below trend growth**	$1,200	0
average growth***	$9,000	0
Annual Costs Less Equity Gains		$12,000
no growth	$9,763
loss of value*	$11,673
below trend growth**	$8,473
average growth***	$673

*assumes 1% annual depreciation ** assumes a 0.6% annual appreciation ***assumes 4.5% annual appreciation

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Buyers Come Out Ahead!

Given that price growth has recently deviated from its usual pattern of increase, the table above considers four different price growth scenarios, including a loss! You may be surprised to see that the homeowner still comes out ahead of the renter even if there is a DECLINE in the home's value over the next year. However, most experts agree that this will be the year that the home prices stabilize and there have been signs of this already for our area. Extraordinarily low interest rates and lower prices have ushered in some of the affordability conditions in a generation. Further, special tax advantages exist for buyers who purchase before December, 31 2009.

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Homeownership is a Good Investment for Qualified Buyers

For a majority of Americans, their homes is their largest financial asset and a major player in their investment portfolio. The NATIONAL ASSOCIATION OF REALTORS^® estimates that home value rises, on average, by 4.5% a year nationally. Our Baltimore Metro area is closer to 6%. That's a steady return on investment; one's own home is a much less volatile asset than stocks, bonds, or mutual funds, even when the recent downturn is considered.

OK, So now we have a better understanding of how Buying a home can help us keep our hard earned money. Let us get to the good stuff and learn how we can build wealth for ourselves as apposed to making landlord wealthy through homeownership!

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