LOVELAND – When comparing renting versus buying a home, you should consider more than just the monthly expenses applicable to each. There are other long term benefits that can ultimately outweigh the short term differences. Here are a few of the major differences.
Tax benefits are one of the major reasons that people decide to buy instead of rent. Several different homeownership expenses can be deducted on your federal (and in most cases local) tax returns. Among them are mortgage interest, property taxes, points, and possibly private mortgage insurance. The total of these expenses will obviously vary based on where your home is located and how large of a mortgage you maintain.
The standard deduction on federal tax returns is $6,300 for single filers, $12,600 for married couples, and $9,300 for heads of household. If your annual deductions exceed this amount, you can itemize them. For most homeowners, deductible home ownership expenses allow them to itemize deductions and therefore also take advantage of other available tax. This can make a big difference! When you compare renting versus buying, it’s important to consider the amount of taxes that you may be saving if you own rather than rent.
Home ownership is an investment. Like other investments, it has the potential for delivering significant returns over time. This should be an important factor in your rent vs. buy analysis.
As you pay your mortgage each month, part of that payment comes back to you in the form of equity. Additionally, you have the opportunity to gain more equity as market prices increase for homes in the area. Renting gives you no such opportunity!
Although home prices may fluctuate up and down, they historically follow an upward trend. Therefore, the longer you own your home, the better your equity-building opportunity.
This equity can be of huge help in the future. You may cash out equity in the future when you go to sell. You may be able to borrow against it for other life expenses. It can be used as a down payment on a future, perhaps larger or more expensive, home. There are a variety of options that become available when you have home equity.
A true comparison
A true comparison of renting versus buying a home cannot be done without weighing the full pros and cons, both short and long term. Of course, it is important to look at the monthly cost of each option, but be sure to add in the yearly tax savings. Finally, add some weight to the potential to build equity. Usually, these items tip the scale, making buying a home the clear choice.