What are the Financial and Tax Benefits of Homeownership?

Benefits of being a homeowner

Homeowners who have owned and maintained their properties in good condition can see a significant return. Even adjusting for inflation, home values tend to have positive gains over the years.

Note: Consult your licensed financial tax expert before making changes in homeownership for financial and tax purposes.

Home Price Trends (h2)

While the average home price has risen at different rates depending on the market, the general trend has been upward in most of the country.

A Federal Housing Finance Agency report of home sales in the top 100 metro areas of the United States from 1991 to 2021 found that a single home purchased for $100,000 in January 1991 could be worth $331,190 in April 2021. This 300% increase includes the 2008 to 2011 housing market downturn.

In addition to property appreciation, there are other financial benefits of homeownership.

Building Equity

Home equity is your home’s current value, less any amount you still owe on the property. As you make your mortgage payment each month, you can build more equity in your home.

However, home equity can represent more than just paying off a mortgage loan. It becomes collateral the homeowner can tap into for a home equity loan or a home equity line of credit to borrow against for other financial needs.

Long-Term Savings

There are several ways a homeowner can take advantage of the equity in their home. Since homeownership rates tend to peak at or near retirement age, home equity can contribute to retirement savings.

In addition, the homeowner can take out a loan against the home’s equity. Should the homeowner need cash and have sufficient equity in their home, a home equity loan is available for homeowners to use for anything they desire, such as home improvements, emergency expenses, or debt consolidation.

Managing Expenses

Homeownership helps families manage their budgets when it comes to housing expenses. For example, homeowners with a fixed-rate mortgage always know how much their monthly mortgage payment will be while living in the home. On the other hand, renters face uncertainty when renewing a lease that may include a price increase.

Wealth Accumulation

Financial experts tell us homeownership is one of the best ways to increase personal wealth because your home equity typically increases as your home value increases. Therefore, a home with increased value is often sold at a profit.

Homeowners can reinvest the profits from a home sale in a new home, purchase an investment property, or invest in other wealth-building vehicles. Additionally, you can use your home to build wealth by turning it into a rental property rather than selling it to a homebuyer.

Strengthen Credit History and Borrowing Power

Homeownership reflects financial responsibility. Banks and lenders look favorably on prospective borrowers who own their homes and have a positive payment history. And, as equity builds in the property, lenders tend to look favorably on borrowers for future loans.

Tax Benefits of Home Ownership

Besides the equity gains, home ownership has several tax benefits. These include:

  • Mortgage Interest Deduction. The Internal Revenue Service allows homeowners to deduct mortgage interest paid during the year. During the life of a mortgage, this deduction can amount to significant savings.
  • Property Tax Deduction. While this opportunity may vary depending on location, property taxes are often deductible.
  • Capital Gains Exemption from the Home Sale. IRS rules allow single taxpayer homeowners to exclude capital gains taxes on the first $250,000 profit from the sale of their primary residence ($500,000 for a couple who file jointly).

Work with an Experienced Professional Real Estate Agent

A home is often the most significant purchase an individual or a couple may make. Financial experts consider homeownership an excellent investment. While there are no guarantees, people who have bought and held their homes typically benefit financially.

Whether buying or selling a home, local market knowledge is vital. Working with an experienced real estate agent can help ensure a buyer pays the right price and the seller maximizes their profits.