"Dual-Residency Dilemma" Your clients, Holly and Jim, are considering buying a home. They have lived in...

"Dual-Residency Dilemma" Your clients, Holly and Jim, are considering buying a home. They have lived in an apartment to save money for two years and want to own their own home. In addition, they are eyeing a possible purchase of a beach house as a rental property within the next five years. They have come to you for advice about the benefits of home ownership. Choose a topic from the chapter related to home ownership or owning a rental home and expand on the topic by explaining the rules supporting it. Discuss at least one tax-related advantage of home or rental property ownership that you would share with Holly and Jim.

Expert Solution

Owning a home provides financial benefits in the form of financial security and housing security. You fel secured and it brings you inner peace as well. The property tends to get the incremental appreciation in the value, because the real estate prices tends to reise in the long-run. Homeowners enjoy better housing security than renters when they live in their owned house and have a low risk of being displaced from their property because of the uncontrolled events.
Ownership offers better housing security in couple of ways, one can choose to customize their home as per their choice, they enjoy other perosnal space as well like personal parking etc. The homeowners enjoy diminishing housing costs overtime.
You get a number of tax breaks for owning a home, most notably a deduction for the interest and property tax portion of your mortgage. This deduction is particularly useful for off-setting the initial financial blow that comes with purchasing your property, since in the first years of owning your home you’re mostly just paying off the interest on your mortgage, as opposed to the principal. The first year you buy your home you are also able to write off any mortgage points on your loan, which can lead to pretty considerable savings depending on how many points you claimed. And if you ever decide to refinance your home after building sufficient equity in it, you also have the option of taking out a home equity line of credit, which is itself tax deductible.
The main tax benefit of owning a house is that the imputed rental income homeowners receive is not taxed. Although that income is not taxed, homeowners still may deduct mortgage interest and property tax payments, as well as certain other expenses from their federal taxable income if they itemize their deductions. Additionally, homeowners may exclude, up to a limit, the capital gain they realize from the sale of a home.

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