Recently we posted an article on our Facebook page that created quite a stir. The article stated that average rents are nearing or exceeding the cost of mortgage payments in San Diego county. Many people posted comments stating that rent control is the answer to rising rents. In fact, purchasing a home with a fixed rate mortgage is the ultimate rent control. As a homeowner, your fixed-rate mortgage will never go up! Additionally, as a homebuyer, you don’t need a large down payment to get into a home. We have first time homebuyer programs that require as little zero down. You can read more information about these programs here.
There are many other benefits to being a homeowner. Homeowners get tax deductions that renters do not, effectively lowering the cost of homeownership. Homeowners may reduce their taxable income by claiming their annual mortgage interest, property tax, loan points and, in some cases, private mortgage insurance. Any amount that exceeds your standard deduction is money in the bank, literally.
For example, let’s say you are a married couple filing a joint return. You are renting now and use the standard deduction of $12,600 (for 2016) to lower your taxable income. Now let’s say you purchased a home at the beginning of 2016 and your principal and interest payment is $1,900 a month. You can now deduct your mortgage interest (most of your payment will go to interest in the first few years of the loan). This means that instead of using the standard deduction, you can now deduct mortgage interest of approximately $22,000 which is a net $9,400 more than the standard deduction. If you are in the 25% tax bracket, you will save $2,350 in Federal taxes you would have paid as a renter just from the mortgage interest alone. If you think of it, that reduces your net house payment by more than $200 per month.
In addition, any home property tax you paid (usually about 1.25% of your purchase price annually) is also deductible. If you add in your property tax deduction, loan points and possibly private mortgage insurance, you could be savings hundreds more.
Uncle Sam wants you to be a homeowner and is giving you the deductions to prove it! Talk to your tax preparer to get more information about your specific homeownership deductions.
So, now that you know the tax benefits of homeownership, not to mention equity accrual, having a place to call your own, the joy (or torture) of watching DIY and HGTV, and never having to negotiate another landlord/tenant agreement, give us a call to get the homeownership process started!
Helen Young is the Branch Manager of Choice Lending Corp’s San Diego office. She has more than 20 years of experience in mortgage lending. She obtained her Bachelor’s degree from San Diego State University in Business Administration and Accounting and is a Certified Public Accountant (CA inactive). She is a member of the San Diego Association of Realtors, Pacific Southwest Association of Realtors and the Women's Council of Realtors. She belongs to the San Diego Regional Chamber of Commerce and is a member of the California Society of Tax Consultants. She is also a CA Real Estate Broker.
* The information above should not be considered actual tax advice. Please consult a tax professional to discuss your specific tax benefits related to homeownership.