Uncle Sam Wants You to Own a Home!

Tax season should be over for most of us with the exception for those filing extensions and we could finally breathe a sigh of relief. Very few people, however, take full advantage of all the tax deductions they’re entitled to. For example, were you aware that homeowners and real estate investors get preferential treatment on their tax returns? This fact is one of the biggest enablers of wealth-building: the government actually subsidizes your cost of owning a home! If owning a home is beneficial to your financial net worth, then why not own more than one? The tax advantages, potential for appreciation, and passive income are all key ingredients for compounding your wealth faster. Here then are some of the tax benefits of homeownership and real estate investing: 1. Subsidized cost to finance a purchase. If you can itemize your deductions on a form schedule A on your tax return then the government is assisting you with the cost of living in your home. This one advantage mortgage borrowers get may make it more affordable than renting in most situations. Not only is the mortgage interest potentially tax deductible, but the property tax may be too. 2. Profits on sale are tax-free. Any profits on the sale of your home may also be tax free. This allows you to build up equity in the appreciation of your home and pocket the gains of up to $500,000 for a married couple. 3. Renting out your home is like a retirement account. Instead of selling your home you could keep it and rent it out to tenants who are not able to buy a home yet. The depreciation tax deductions, mortgage interest, taxes, and maintenance will usually more than offset the income earned from the rental and give you additional tax deductions to lower your overall tax liability. An added tax benefit called the 1035 exchange is the ability to “roll over” your capital gains to another like-kind property and defer your taxes indefinitely. So why not start taking steps this year to establish your real estate fortune and even have the government shoulder some of the bill? Consult with a tax professional on how to properly integrate these techniques into your financial situation and see if they apply to you.