The first part of this series examined why owning a house is a financially smart move. You'll benefit from tax write offs, which everyone enjoys. If you are still unconvinced, there are even more financial benefits homeowners enjoy.
Improvements and repairs
Over the course of the time you spend living a house, you will almost certainly make repairs and improvements. The most financially beneficial changes, however, are improvements. The Internal Revenue Service does not count repairs as improvements when it comes to tax deductions. Home improvements help add value to your property, which can help if you're trying to sell.
There are a few projects that will add substantial value, such as bathroom improvements, and flooring replacements, according to Max Real Estate. Perhaps none are more important than the structure's interior. Plumbing, heating and electricity are considered essential and if there are any faults, the market value of your house will likely decline.
If you're thinking of moving, you should invest in upgrading your property to ensure it's a turn-key home. Max Real Estate's Bill Gassett said many of today's buyers don't want to pay for upgrades and want to focus their funds elsewhere.
As you make improvements, remember to save every receipt, even if you have no immediate plans to move. You should do so in the event something is wrong or has to be returned. Receipts serve as proof of purchase. Also keep in mind that if you're making changes to wiring and other essential systems, you'll have to contact a home inspection company to make sure everything abides by current regulations.
After receiving a mortgage, you will likely be offered the chance to purchase mortgage points, sometimes called discount points. These will help you lower the interest on your loan, but you'll have to pay for them.
Each point is 1 percent of your total loan amount. For example, if your loan is for $200,000, one discount point would cost $2,000. You may question how you'll financially benefit, but in order to see the results you'll have to purchase multiple points. If your mortgage's interest rate is locked in at 5 percent and you purchase two mortgage points for $4,000, the interest rate will decline to 4.5 percent.
Max Real Estate recommends purchasing mortgage points if you plan on living in the house for an extended period of time. They aren't necessary, but you could potentially save money on your tax bill in the year after buying the property.
A generally unknown tax break comes in the form of home equity loans. These loans are when you use your house as a form of collateral. Homeowners typically take this type of loan to finance major expenses, such as medical bills, home repairs and tuition for college. If you take out a home equity loan, you can deduct its interest on your taxes for up to $100,000.
Mortgage insurance deduction
According to the popular real estate service Zillow, most homebuyers save 5 percent to 20 percent for the down payment. The amount you spend upfront is combined with your mortgage to meet the purchasing price of the house.
Bassett said that for most homebuyers, a down payment of 20 percent is not realistic. As a result, you'll have to take out mortgage insurance if you offer a down payment of less than 20 percent.
Fear not, however, as you'll be able to deduct mortgage insurance from your tax bill, as long as you make less than $100,000 a year. If your income is between $100,000 to $109,000, you'll still be able to deduct a portion of the mortgage insurance.
According to U.S. News and World Report, there was some worry this tax cut would not be extended, but Washington D.C. politicians passed the Tax Increase Prevention Act in late 2014, which President Barack Obama subsequently signed.
The most important benefit
Gassett wrote the most important tax exclusion enjoyed by homeowners is the capital gains exclusion, which has been around since 1997. You'll notice this benefit if you successfully sell your house. Essentially, if you sell your property for more than what you originally purchased it at, you can keep up the profits up to $500,000 if married. If you're single, you can keep up to $250,000 of the profit.
The capital gains exclusion is designed so your tax-free profits are put toward purchasing another house. Bankrate.com called the capital gains exclusion the best tax break available.
Homeowners enjoy many financial benefits from owning a house. Renters may not not see the immediate advantages, but that's due to homes being a long-term investment.