Still renting? It adds up

Beyond equity: Other advantages of owning a home vs. renting

Equity isn’t the only reason why owning a home may be advantageous to you. There are a number of compelling reasons to consider taking the plunge of homeownership rather than continuing to rent, including:

• Potential tax benefits accorded to homeowners
• You aren’t captive to a landlord who can suddenly raise your rent
• You can decorate/renovate your home any way you choose

Potential tax benefits accorded to homeowners

There are some very interesting tax-related reasons to purchase a home. While it’s recommended that you always check with irs.gov and your specific state for the most up-to-date information, we’ve highlighted some of the more prominent tax breaks below:

• Property taxes: You can deduct real estate taxes paid on your home up to $10,000 at the federal level ($5,000 if married filing separately). Some states may allow you to deduct the full amount.
• Mortgage interest: Homeowners are allowed to deduct home mortgage interest on the first $750,000 ($1M if the mortgage was secured prior to December 14, 2017).
• Deductions on home improvements: Major home improvement repairs can be used to decrease gains you may assume when you sell your house—that’s down the road. In the shorter term, should those repairs be financed through a HELOC, a home refinance or other loan, you may be eligible for deductions. Additional federal tax deductions also exist for energy efficiency modifications to your home. Your state may offer similar tax breaks.
• Capital gains: If you meet certain federal requirements, the first $250,000 of profit ($500,000 if married and filing jointly) is exempt from capital gains tax when you sell your home. This means the vast majority of homeowners get to reap the full financial benefits of having the price of the home appreciate over time.
• Income from rent: While it may not be the first thing you’re concerned with when you buy a new home for you and your family, at some point you might find yourself renting out your home. If that’s the case, you can claim your real estate taxes and mortgage interest as a deduction. You can also deduct your home insurance and any money spent on repairs.

You aren’t captive to a landlord who can suddenly raise your rent

Besides not enjoying the tax-related or equity-building benefits of homeownership, there’s another harsh reality that renters must face: They have zero control over price increases in their rent.

When you sign a lease with your landlord, you’re only locking in the monthly rent on your home for a limited period of time (typically 12 months). After that, should you choose to renew your lease, your landlord can suddenly decide to raise the rent without warning—sometimes quite dramatically. If you haven’t been looking around for alternative accommodations, you might be stuck at the last minute signing a lease for another year at a price point beyond your comfort level. And as bad as that sounds, the next year could result in yet another rent hike. That’s the unpredictable nature of renting, and another reason why homeownership puts you in the driver’s seat: greater control over your financial well-being.

You can decorate/renovate your home any way you choose

Exercising the full privileges of homeownership means having the right to determine how your home looks—inside and out. That’s a beautiful thing, and it’s not something extended to renters.

When you rent a house or an apartment you’re essentially a long-term visitor. In a sense, you’re a glorified guest in your own home, never fully rewarded the right to redo the kitchen, add a skylight or construct an outdoor patio—all things homeowners regularly undertake every year with great panache.

Even seemingly uncontroversial activities such as painting your kitchen or family room a color other than white (or equivalent) can sometimes sound alarms with strict landlords. On top of that, there are a host of hidden fees that can inflate the cost of renting. These aren’t discussed a lot but they’re there in the fine print and they can sour the renting experience very quickly.

All in all, renters need to think long and hard whether answering to a landlord is impinging on their lifestyle and shrinking their dreams. While the financial component will always loom large, you also need to think about the opportunity cost of staying too long in an apartment or neighborhood that no longer suits who you’ve become and where you want to go. For many Americans, homeownership is where dreams take seed.

You may not think you need to remodel that kitchen today, but wouldn’t it be nice to know you could if you wanted to? That’s homeownership; it unlocks choices well beyond equity or intergenerational wealth. It allows you to participate in the American dream on your terms.