Should you own your home? The tax benefits aren't that enticing
Posted Oct 01, 2013 10:44 am CDT
The tax benefits of home ownership aren’t all they are cracked up to be, according to a tax blogger who recently sold her home.
Writing at Forbes’ Taxgirl, Kelly Phillips Erb says she never wants to buy another house, and lists 11 reasons why.
It’s true that homes can appreciate with inflation. But so do other assets, the story points out. And though interest is deductible, homeowners still pay more in interest than their tax savings. Another problem with that mortgage deduction: The high standard deduction available ($12,200 for married taxpayers filing jointly) may making itemizing unnecessary.
At the time the article was posted, average 30-year mortgage rates were 4.3 percent. A buyer who pays $200,000 for a home will pay more than $156,000 in interest, or a little more than $5,000 a year when averaged out over the life of the loan. A person in a 25 percent tax bracket would save only about $1,300 in taxes per year, according to the article.
Those who do hit the “home appreciation jackpot”—gaining more than $250,000 if single, or more than $500,000 if a married couple—will have to pay capital gains on the overage. High earners will also have to pay a Medicare tax of 3.8 percent that is levied under the new health care law.
Those who lose money on the sale of their personal residence, on the other hand, cannot deduct the loss. But those who lose money on stocks can deduct the losses against other gains.
The article sees other home ownership negatives. Home ownership can limit mobility and can cost a lot of money in upkeep. “I’m not saying that owning a home is a bad thing,” the author says. “I liked being a homeowner. I just happen to like renting more. … I’m also not advising folks to eschew real estate: it can be a good investment for some taxpayers. In addition to owner-occupied properties, rentals can be a good financial move.”
Answer in the comments of our Question of the Week: Do you own your home? If yes, why? If no, do you aspire to own or think it’s not worth it?