We often discuss the legal aspects of real property. The following are some of the financial benefits of owning residential real property:
1. The interest that you pay on your residential mortgage is tax deductible. This includes the interest that you pay on any home equity loan. For people with moderate to high income and few deductibles, this could mean significant tax savings. The tax deductions would reduce the amount of taxes you actually pay. In a sense, the state and federal government is indirectly subsidizing part of your purchase.
2. The real estate taxes that you pay are also tax deductible.
3. Real property in Hawaii has, over the long term, historically appreciated and has been a good investment.
4. Since May, 2003, you pay less on your long term capital gains. The tax rates for long term capital gains have decreased.
5. There can be a substantial exclusion of gain if you sell your primary residence. Home owners who occupy their homes for two of the last five years and who are married and who file jointly can exclude gains of up to $500,000 on the sale of their primary residence. Those who are single or a married person who files separately can exclude up to $250,000 of gain. You should consult with your tax advisor for your particular situation.
6. When you pay off the mortgage, your cost for housing is essentially reduced to the costs of maintenance, insurances and taxes.
7. In Hawaii, your real property tax exemption increases with your age. Typically, most people pay off their mortgage in the later years of their life. As we indicated in a previous article on home exemptions, you get the following tax increase in exemption when you reach the following ages:
55 years of age before June 30 of the preceding year - $40,000
55 to 59 years of age before June 30 of the preceding year - $60,000
60 to 64 years of age before June 30 of the preceding year - $80,000
65 to 69 years of age before June 30 of the preceding year - $100,000
70 years of age or older before June 30 of the preceding year - $120,000
8. Paying for a home can be viewed as forced savings. With the likely appreciation in value in your home and with your ultimate pay off of your mortgage, you will have accumulated substantial equity (money value) in your home.
There are negative aspects to owning real property, such as the amount of capital typically required for a down payment and the commitment, especially here in Hawaii, of a large percentage of your income for housing. For most people though, the positives far outweigh the negatives. |
