Be a first-time home buyer is not easy, but do not worry about it! Central On Point is here to help you clear all your doubts about why you should buy a home. To make that, let’s start with the mortgage which is the number #1 issue for many people before trying to buy a home:
Home ownership is a superb tax shelter and our tax rates favor homeowners. For that reason, as long as your mortgage balance is smaller than the price of your home, mortgage interest is fully deductible on your tax return. Interest is the largest component of your mortgage payment.
Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces your obligation. The way amortization works, the principal portion of your principal and interest payment increases slightly every month. It is lowest on your first payment and highest on your last payment. On average, each $100,000 of a mortgage will reduce in balance the first year by about $500 in principal, bringing that balance at the end of your first 12 months to $99,500.
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Consumers who carry credit card balances cannot deduct the interest paid, which can cost as much as 18 percent to 22 percent. Equity loan interest is often much less and it is deductible. For many homeowners, it makes sense to pay off this kind of debt with a home equity loan. Consumers can borrow against a home’s equity for a variety of reasons such as home improvement, college, medical or starting a new business.
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Now, continuing with why you should buy a home, let’s focus on the tax benefits you could get for buying a home:
IRS Publication 530 contains tax information for first-time home buyers. Real estate property taxes paid for a first home and a vacation home are fully deductible for income tax purposes.
If you receive more profit than the allowable exclusion upon sale of your home, that profit will be considered a capital asset as long as you owned your home for more than one year. Capital assets receive preferential tax treatment. This means even if your profit exceeds the exclusion, the taxable portion will be much less than you might imagine.
As long as you have lived in your home for two of the past five years, you can exclude up to $250,000 for an individual or $500,000 for a married couple of profit from capital gains. You do not have to buy a replacement home or move up. There is no age restriction, and the “over-55” rule does not apply. You can exclude the above thresholds from taxes every 24 months, which means you could sell every two years and pocket your profit—subject to limitation—free from taxation.
So, why you should buy a home? Well, there is much reasons, but we hope that we could help you with these 6 reasons.
If you need financial advising or you want to schedule a call, please contact us, we are ready to help you today.