Home Ownership As A Savings Plan
October 13th, 2007 Categories: Buying
Home Ownership As A Savings Plan
Home ownership is one of the things that make this country great. There are not many places on the planet you can with little or no money own land and then resell it for a profit and through proper planning not pay taxes.
It serves as a savings plan and has tax advantages to go along with it. If you bought a house in 1975 for $27,000, financed at 7% interest, your principal and interest payment would be $179.00 per month. This would make the total payments of the house $64,440.00 (not including taxes and insurance). It is safe to say that that property would be worth at least $150,000.00 today. If you factored in $2,400 per year for taxes insurance and maintenance for 30 years that comes to another $72,000.00 totaling $136,440.00 with a yield of $13,560.00 plus a place to live for 30 years.
The federal government believes that homeownership is important enough to the American economy that HUD (Housing and Urban Development) a cabinet level position. The tax code encourages home ownership. Currently the tax code allows a homeowner to deduct the interest on mortgage and the property tax from their income tax. Based on the above example the interest that was paid over the 30 years $37,667.40. Let us assume that the tax bracket was 20% that is another $7,533.48 in savings. Now the total cash realized is up to $21,093.48 plus a place to live for 30 years. If you had managed to maintain the property for $6,000 less or if it were worth $6,000 more than the above example that would be the price you paid plus a place to live for 30 years.
As of October 1997 the Capital Gains tax reform of allows you to sell your primary residence every two years and not pay taxes on the gains, $250,000 gain per individual and $500,000 per married couple. Before the 1997 reform you were allowed to buy a replacement property of equal or greater value.
Based on the above example a family can by a property and sell it and exempt the profit or gain from tax up to $250,000per individual and $500,000per couple.
My advice to empty nesters sitting on a large equity position is to convert to a lower maintenance lifestyle and invest the balance of equity back in real estate.
This is not to serve as tax advice, seek help from a CPA.
If you need a referral contact me.
Leave a Reply
Copyright © 2007 Salt Lake Real Estate Blog Agent Login Design by Real Estate Tomato Powered by Tomato Blogs
[…] Investment (read Homeownership As A Savings Plan). Security Knowing you have a place that is yours and can be passed down. […]
[…] Home Ownership As A Savings PlanHome ownership is one of the things that make this country great. There are not many places on the planet you can with little or no money own land and then resell it for a profit and through proper planning not pay taxes. … […]
The peripheral benefits of the investment in a home is what makes it so special. It’s the best expense that we can have - virtually every other thing in our lives that adds to our comfortable loses money, year over year, while a well-maintained home, financed with a fixed rate mortgage, in an area that others would like to live, will ensure that over the long term you have a source of financial stability, and a form of tax shelter in an increasingly taxing climate. A home isn’t exactly a stock, but it is a baseline of investing that the rest of your financial planning will be built around.