Home Mortgage
Income and Benefits
Paid interests over a home mortgage loan is a deductible tax expense, which reduces the taxable income at a federal level. Thus, with a savings result in the paid taxes. For example, in a taxable year, if the interest of a home loan mortgage is of $12,000 the taxable income is reduced by this amount. Thus, the effective rate of the cost of the home loan is reduced by the savings in taxes.
Effective Interest Cost = 0.06 x (1 – 0.35) = 0.039
The second taxable benefit in favor of home ownership is the property’s tax over your home can be deducted, which reduces the taxable income and the paid taxes.
The third taxable benefit for home ownership occurs when the house is sold. Gains resulting from the sales of the main residence is not taxable if profits are less than $250,000 for a tax payer that registers an only return and $500,000 for that whom registers a return as a whole.
To qualify for this tax exemption over profits from capital, the home owner must have lived in the house for at least 2 out of 5 years. And the exclusion is applicable for a single sales every two years. Price of houses have raised throughout the last 50 years. Therefore, this exclusion of taxes of profits over capital result in an increase over returns of profits after sales taxes of a main residence when compared with the sales of other investments such as stocks and bonds.
These benefits over taxes generally make it advantageous to buy a house instead of renting it. However, there are times in which it is more advantageous to rent than to buy.
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