The majority of people buy homes to build wealth. In fact, there’s a saying: “Why pay someone else’s mortgage and contribute to their equity when you can spend the same amount of money or less and reap the same rewards?”
Yet still, many buyers are scared by today’s high-priced market, and some feel that renting in Orange County is better than buying. However, this couldn’t be further from the truth in many cases. So, today we’ll discuss 4 reasons why buying a home in Orange County is still affordable.
1. Appreciation
Unlike vehicles that depreciate in value, homes consistently increase even though real estate values tend to move in cycles. There’s a common misconception among first-time buyers where they think that the home’s physical characteristics will increase the value.
But the truth is that the physical structure usually depreciates over time, whereas the land the house sits on increases in value. Either way, most people consider their home investment to be their best defense against inflation. Since 2000, home prices in Orange County have appreciated 173% according to data from Neighborhood Scout.
2. Property Tax Deductions
Another reason buying a home is still affordable is because there are various ways it helps with taxes, with some of these deductions coming in the form of property tax.
Before 2018, homeowners could deduct all state income and local property taxes on federal returns. Before that year, the average state and local tax deductions (SALT) in California was more than $18,400.
Once the federal cap on SALT deductions of $10,000 is removed, ownership becomes even more beneficial. First-time home buyers can find a wealth of tax information in IRS Publication 530.
Just keep in mind that if you want to take advantage of the property tax and interest deductions, you have to itemize the deductions.
3. Mortgage Interest Deductions
As we mentioned, owning a home is an excellent tax shelter because tax rates usually favor homeowners. And if you ask most homeowners, they’ll agree that the most significant advantage of owning a home is the tax deductions.
With that being said, if your mortgage balance is lower than the cost of your home, then you can fully deduct mortgage interest from your tax returns. And this is great because, as most of you know, interest is one of the biggest components of your monthly payment.
4. Preferential Tax Treatment
If you own a home for longer than one year, upon the sale, if you make more in profit than the allowable exclusion, the profit is considered capital gains. In terms of income taxes, capital gains receive preferential treatment, which means that even when sale profit surpasses the exclusion, your taxable portion will be far lower than you think.
The average income tax rate for most taxpayers is about 22%. Considering that capital gains taxes will range from 15% to 20%, the savings can be significant.
Once you’re ready to buy a home, it is worth it.
Purchasing a home is a serious commitment to that location and community lifestyle, yet the financial benefits are well worth it in the long run. Real estate ownership is certainly one of the most rewarding investments available.