What are the Tax Benefits of Having a Home Loan?
Should I Get A Mortgage If I Can Pay Off My Home
Having a
mortgage to payoff isn't necessarily a bad thing. Photo: iStock
Many people dream of a day when they no
longer have a mortgage. It is a wonderful feeling to own your own house, have no
debt, no worry of losing your home. However, there are tax advantages to having
a mortgage loan that might make you change your mind.
There is something to be said for
security. Achieving a life-long dream of owning a home is a valid concern and
should be taken into account. It is an attractive prospect to be able to go to
sleep at night without worrying about monthly payments, knowing that you have a
home to pass on to your children.
However, every cent of interest that you
spend is tax deductible (if you itemize). You will need to get with your
accountant to determine how this might affect you, but it can be a substantial
benefit.
If you purchase a home, there are
various tax benefits. You may write off the following:
- Mortgage Loan Interest
- Real Estate Taxes
- Capital Gains on the Sale of Your Primary Residence
Mortgage loan interest
When you own a home you may deduct the
interest you pay for the mortgage loan, if you itemize. The interest is tax
deductable on the home you live in, as well as a second home (but not for an
investment property) on a loan up to $1,000,000.
In addition if you get an equity line (a
loan from a lender using equity as collateral), you can write off interest on a
loan of $100,000. There is no requirement of how you spend that money. You can
use it for home improvements or a vacation to Italy. Either way you get a tax
deduction.
Real estate taxes
If you buy a home, you will probably
need to pay property taxes to your local government. There are a few states that
do not require this tax, but most do. This fee that you pay is tax
deductible.
Capital gains on the sale of your
primary residence
If you live in a home and choose to sell
it, you do not need to pay taxes on $500,000 of the profits if you are married
($250,000 if you are single). It is required that you live in the home (and
don’t use it as a rental) and that you have lived there for at least two
years.
You do not need to purchase a new home,
nor are there any age requirements for this to work for you. In addition you can
qualify for this tax advantage every two years.
Why pay interest at all, if I can pay
off my home?
Some may argue that you need to pay
interest in order to take advantage of the tax benefits. If you can save that
money, why get a mortgage loan if you don’t need one?
If you can make more money with the
money you would use to buy a home, that would be better for you. For instance if
you are paying 6% for your home loan and get decent tax savings, your interest
rate might end up being the equivalent of 5%. Now let’s say you can find a
secured investment that could make 8%. Wouldn’t it make sense to invest your
money there, instead of putting it into the walls of your home?
Let’s say you can only earn 5% on an
investment. It would still be a good idea to get a mortgage and invest your
money. The reason is that you are keeping your money liquid. If you put all your
available funds into a home and there is an emergency, you will need to wait
weeks or months to access those funds.
When you add up all these tax savings
with your accountant, you might save thousands of dollars each year. You need to
crunch the numbers yourself and see what works best for you and your
family.
By Laura Sherman reposted from realtor.com
reposted by:
Patti Duty, Texas Realtor (940)577-2733
Having a
mortgage to payoff isn't necessarily a bad thing. Photo: iStockreposted by:
Patti Duty, Texas Realtor (940)577-2733
