Question

Here are six Financial Benefits of Home Ownership. 1. Builds Wealth 2. Builds Equity 3. Tax Deduction Benefits 4. Capital Gains Exclusion 5. Forced Savings Plan 6. Cheaper Than Renting. Please give your explanation and description of how these are beneficial and how they are beneficial.

Answer 1

1) House Ownership: House ownership is a good way to build wealth from the capital appreciation of the house and the rental income if any from the house.

2) Builds Equity: As the payments are made towards the house, the ownership of the house increases and hence it helps to build equity. The house is an asset that shows the ownership against which future loans can be availed.

3) Tax Deduction: The interest paid on the home loans or the money spent on the house repairs are tax deductible; i.e. you do not have to pay tax on that part of the income.

4) Capital Gains Exclusion: If the house is sold before 24 months of its purchase a Short term capital gains tax has to be paid. If the house is sold beyond that time a Long Term Capital gains tax has to be paid with the benefits of indexation. However, if a new house is purchased, the tax is offset against it.

5) Forced savings plan: Buying a house is mostly done with a mortgage loan, which needs periodic payment usually monthly. Thus a person is forced to make the payments. This results in a forced payment which at the end results in the ownership of an asset which is akin to a forced saving plan as it makes the owner to be more responsible.

6) Cheaper than renting: Considering the amount that goes into paying rent, could be used to pay the EMI's it seems that renting is a cheaper option.