Owning a home has long been the American dream. And it’s more than just a stereotype. There are real, tangible benefits to home ownership, not just for the homeowner, but also for the surrounding community. Homeownership means increased wealth accumulation, better mental and physical health, enhanced social engagement, and improved school performance and development of children. These valuable outcomes are largely the result of the additional stability, incentives and responsibilities of becoming and remaining a homeowner.
Furthermore, homeownership leads to greater wealth accumulation. In fact, household wealth data from the U.S. Federal Reserve indicates that the typical homeowner has almost 45 times more wealth than the typical renter, a difference that is notable among all age groups. Homeownership is a great investment.
Those who itemize their federal tax deductions can deduct 100% of their mortgage interest payments on a first or second home, up to a maximum mortgage amount of $750,000. Additionally, interest paid on home improvement loans is also deductible under the $750,000 cap, provided the loan is used to substantially improve a home. Additionally, homeowners can deduct property taxes paid, subject to an overall cap of $10,000 total deductions for state and local property, sales and income taxes.
Finally, when it comes time to sell your primary residence, most of the profit will be tax-exempt. Subject to certain timing requirements, homeowners may shield up to $500,000 of capital gain from tax due to the sale of a principal residence ($250,000 if single).