A reduction in tax benefits related to home ownership does not erase all of the benefits that home ownership brings. While many of us are indeed tax driven, there are other motivations and benefits as well. Some of these are financial and some are quality of life.
The ability to take advantage of leverage on your home investment provides a substantial financial benefit of owning your own home. A lender will finance 80% or more of your purchase allowing you to increase your investment using this debt while enjoying 100% of the appreciation. This debt allows you to buy a better home with greater upside potential.
Owning your own home also provides a path to family wealth. You can live in and enjoy the home while it increases in value and as you pay down the debt and thus increase your equity. The home can also be passed down to subsequent generations. Or, you may want to cash in on your increased equity and buy a bigger or newer home as your family grows.
Another financial benefit is actually tax related. The gain on the sale of your personal residence can be sheltered from capital gains tax by as much as $500,000 for married couples, and $250,000 for singles, if you meet the exclusion criteria as partially discussed in article 3 of this series. What other asset sale provides such tax advantages?
A financial benefit, particularly in our current rising rental market, is that by purchasing your home, you are locking in your housing costs and avoiding periodic rent increases. Owning your home also allows you to avoid unplanned moves when the landlord unexpectedly sells the property and gives you notice to move-out.
Don’t forget the value tied to your personal use and happiness in the home for you and your family. This value is separate but in addition to all of the financial reasons, tax related or non-tax related, that drives your decision to buy a home. The purchase of your home provides you with a personal asset for your family to enjoy while also establishing many investment opportunities and benefits. Family memories will be built along with your equity.
Pride of ownership is also a strong value in connection with your home. The ability to make improvements and repairs as you see fit depends on how you use the home and how gracious your landlord might be. A common complaint that I hear from renters is that “if it were my house,” I’d put in a new dishwasher or paint the exterior or change the landscaping, or etc. If you hear yourself finishing that sentence differently, you may be yearning to own your own home.
Don’t miss the sixth and final article of this series coming soon.