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  Income Tax Savings

Why Buying a Home is a Good Idea

Income Tax Savings

Because of income tax deductions, the government is subsidizing your
purchase of a home. All of the interest and property taxes you pay in a
given year can be deducted from your gross income to reduce your
taxable income.

For example, assume your initial loan balance is $150,000 with an
interest rate of eight percent. During the first year you would pay
$9969.27 in interest. If your first payment is January 1st, your taxable
income would be almost $10,000 less – due to the IRS interest rate

Property taxes are deductible, too. Whatever property taxes you pay in
a given year may also be deducted from your gross income, lowering
your tax obligation.

Stable Monthly Housing Costs

When you rent a place to live, you can certainly expect your rent to
increase each year – or even more often. If you get a fixed rate
mortgage when you buy a home, you have the same monthly payment
amount for thirty years. Even if you get an adjustable rate mortgage,
your payment will stay within a certain range for the entire life of the
mortgage – and interest rates aren’t as volatile now as they were in the
late seventies and early eighties.

Imagine how much rent might be ten, fifteen, or even thirty years from
now? Which makes more sense?

Forced Savings

Some people are just lousy at saving money, and a house is an
automatic savings account. You accumulate savings in two ways.
Every month, a portion of your payment goes toward the principal.
Admittedly, in the early years of the mortgage, this is not much. Over
time, however, it accelerates.

Second, your home appreciates. Average appreciation on a home is
approximately five percent, though it will vary from year to year, and in
some years may even depreciate.. Over time, history has shown that
owning a home is one of the very best financial investments.

copyright 2000 by Terry Light and RealEstate ABC, revised 2002


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