Many people lose money for years to landlords because they mistakenly believe they cannot afford to buy a home. However, in most cases, these renters are where they are only because they are unaware of all their other options. Most people know that it’s better to put your money into a house that you own than into a rent check you never see again. Some are aware that mortgage payments could actually be fairly close to what they currently pay in rent.
What few people realize are the tax benefits stemming from owning a home can actually save them hundreds of dollars each month. After taking into account these additional savings, which would you choose: giving up a large chunk of your paycheck each month to a landlord for a small apartment, or, for significantly less money, having not just your own home, but also the freedom to take your money out again in the future?
How Tax Benefits Work
Tax benefits from home ownership come in the form of deductions. Come tax time, the amount of money you spent on tax-deductible expenses related to your home financing (many of which are outlined below) is subtracted from the total amount of taxes you owe. Depending on how much you owe and how much you put into your home over the course of a year, home financing could actually result in zero tax liability. That means that your new home may actually bring you a refund check!
For example, assume you owe $12,000 in taxes for the past year, and your mortgage payment is $1,000 per month. In the early years of a mortgage, payments are usually almost entirely for the interest you owe on your home loan. Mortgage interest payments are tax-deductible, so from this one deduction alone, you now owe $12,000 less in taxes