Craig Della Penna, Realtor®'s Blog
146 Ashfield Rd, Williamsburg, MA 01096
If you're currently renting an apartment or house, it makes good financial sense to consider becoming a homeowner in the foreseeable future. There are pros and cons to owning your own home -- and it's not for everyone -- but for most people, the advantages far outweigh the disadvantages.
An exception would be if your job requires you to relocate frequently. In that scenario, the potential benefits of building up equity in a home would be greatly diminished.
On the other hand, if you plan on staying put for more than a few years, then the tax benefits and investment value of owning real estate could put you on a stronger financial track than if you continued shelling out your hard-earned money to a landlord. You've probably heard the argument before: "If you pay rent, you have nothing to show for it at the end of the year". However, when you buy a home, an increasing portion of your monthly payments is applied to your actual ownership of the property (as opposed to how much you owe the bank).
Tax Advantages of Home Ownership
In most cases, you can deduct all of your home mortgage interest from your federal tax returns, according to the IRS. More specifically: "The only costs you can deduct are real estate taxes actually paid to the taxing authority, interest that qualifies as home mortgage interest, and mortgage insurance premiums."
However, since everyone's financial situation is different and there is no "one size fits all" approach to financial management, it's always best to consult with an experienced CPA, enrolled agent, or knowledgeable tax preparer. There may be other tax benefits you could qualify for as a homeowner, too, including getting tax credits for installing a solar energy system. The government's Energy Star program says tax credits on new solar energy systems are available through the year 2021.
Getting the Process Underway
Two key steps to becoming a home owner are finding out your credit score and meeting with a mortgage lender to determine how much of a real estate loan you could qualify for. An experienced real estate agent can also provide you with a wealth of guidance and information on how to become a homeowner. They can fill you in on many of the exact steps, requirements, and advantages of buying your first home. A buyers' agent can also help you assess your readiness to take the plunge into home ownership.
In addition to finding out your credit score, which will impact your mortgage interest rate and the type of loan you may qualify for, other vital information can be gleaned from a detailed personal budget. Although the amount of rent you now pay will provide some insights into your potential house-buying budget, there are a lot of variables which will impact how much of a mortgage you could comfortably afford.
Buying a home is one of the biggest and most useful investments that you’ll make in your lifetime. One thing you should understand when you're making big improvements to a home or doing any kind of high return renovations is that of the Capital Gains Tax. This tax can take away from the return on your investment, especially under the right circumstances. Even with minimal improvements to a home, if an area has seen an upswing in popularity, you could end up paying the price when you go to sell.
Taxpayer Relief Act
The Taxpayer Relief Act of 1997 can help many people to hang on to the returns they see from the sale of their home.
Previously, homeowners could qualify for a one-time tax exemption of up to $125,000 on the sale of a home. They also could combine the earnings in on the purchase of another home. Currently, there are a few ways that you can save on the Capital Gains Tax thanks to the TRA.
House Flippers And Homeowners Aren’t Equal
Not all home sales receive an equal tax treatment. If you are flipping houses, you’re out of luck when it comes to receiving profit-friendly tax breaks. You need to have lived in a home as your primary residence for two out of five years of owning a home in order to qualify for tax breaks. If this isn’t the case, you’ll end up paying a Capital Gains Tax on the sale of the property. If you’re a professional house flipper, your homes are considered inventory and taxed as income. The tax on this can vary from 15% to 20%, depending upon the tax bracket you fall into.
The Type Of Property Matters When It Comes To Taxes
Whether the property is a primary place of residence, a vacation home, or a rental property, the gains are all taxed differently. If you own a second home that you’re interested in selling, it’s not treated the same as a primary residence for tax purposes. You’ll be taxed based on the amount of time that you owned the property, or the amount of time that the property was used as a second home. The taxes are based on a prorated amount of time.
The Price Of The Home Doesn’t Matter
You may think that higher priced homes are taxed more heavily than less expensive homes. This would be the case when it comes to property taxes, but it isn’t so when we’re talking about Capital Gains Taxes. These taxes are based on how much profit is made from the sale of the home. If a loss was taken, or the homeowner “broke even,” they may not owe as many taxes. A smaller home that had significant improvements made could be taxed a bit more than a home that was sold at a higher price with fewer upgrades.
39-41 Chmura St, Hadley, MA 01035
One of the many challenges of putting your home on the market is keeping it clean!
That task can be even more difficult if you have kids, pets, and a busy schedule. If everyone is always rushing off to their jobs, classes, lunch dates, meetings, practices, or appointments, it's hard to keep your home in a perpetual state of cleanliness and order.
Probably the first step to keeping your house ready for real estate showings is to remind your family to clean up after themselves. While this may require more than one reminder, any amount of cooperation will help keep messes to a minimum. Implementing some sort of reward system or even a competition among siblings, can go a long way toward maintaining a semblance of order in the house. Some parents even post a calendar of assigned chores to make sure everyone does their fair share.
Professional Help May Be Needed!
Getting your home ready for real estate showings can feel like a monumental task, especially if you have a large house and a messy family! The good news is that you can hire some outside help without depleting your kids' college funds! Many households already have a house cleaning person or service that comes in at least a couple times a month to keep things looking civilized. If your house is actively being shown to prospective buyers, however, you might want to consider having your housekeeper clean the house a little more frequently than usual. That way, you only have to do some minor tidying up when your real estate agent notifies you about a scheduled house showing in a few hours or tomorrow morning.
If any of your rooms are carpeted and the floors haven't been professionally steam-cleaned for as long as you can remember, it may be time to hire a carpet cleaning service. Carpeted floors have an unfortunate tendancy of locking in stains, allergens, and ground-in dirt for months, if not years! Although you can often improve the appearance of your carpets by cleaning them yourself, it often requires the services of a professional carpet cleaning service to really get those stubborn stains out. You can often get recommendations from neighbors, friends, relatives, or coworkers, and can look for online reviews of carpet cleaners on social media websites.
Once you've cleaned, dusted, and sanitized the inside of your house, there may be one more area to tackle before you're ready to have your house shown: its exterior! Your home's siding may be covered with filmy layers of dust, grime, splatters, and environmental pollutants -- a condition which thankfully can be reversed by using the services of a local power-washing company. While not all power-washing services are created equal, a reliable one can remove years of accumulated filmy deposits from pollen, birds, spider webs, acid rain, snow blower splatters, rust, smoky emissions from backyard barbeques, vehicle exhaust emissions, and other miscellaneous air pollution.
So even though the environment, your family, and the wear and tear of normal, everyday use will take its toll on the appearance of your home, there are many things you can do to reverse that process and restore many aspects of your home's original freshness, charm, and appeal!