March 06, 2018 by Royal United

HomeownershipBuying a home can be a major life decision. Financially, it can be one of the biggest expenses a person encounters in their life. Deciding if and when to buy a house is a personal choice that requires serious thought and discussion.

An important aspect to keep in mind is that the housing market varies depending on location. Because of the difference in markets, what makes sense to a prospective home buyer in Indianapolis may not make sense to someone in a similar situation in Chicago or Dallas and vice versa. Even with markets being different across the nation, there are some benefits that most homeowners can take advantage of.


Real estate like any other market moves in cycles. Sometimes up, sometimes down but over the years, real estate has consistently appreciated. Since 1975 real estate has gone up an average of 4.62% per year (nationally). Location is one of the biggest factors influencing home appreciation. Homes located near favorable school districts, convenient shopping areas, social activities/entertainment and green spaces tend to appreciate faster than similar homes in commercial areas.

Homeowners may also help appreciation by maintaining and improving their properties. Maintenance is vital for keeping homes in working condition. Lack of upkeep could have a negative effect on a home’s value. Practical upgrades tend to pay off better than ones that fit a homeowner’s personal preference. A remodeled bathroom or kitchen is more likely to increase a home’s value opposed to less functional improvements such as a built-in aquarium or home audio systems.


Home equity is the amount of money a home can sell for minus what is still owed. On most mortgages, a portion of each payment reduces the loan’s interest and the remainder pays down the principal. The amount paid toward the principal increases the equity. Equity can be viewed as an asset. Each monthly payment increases the value of that resource. If needed, homeowners can borrow against their home equity. Home equity loans are often used for home improvements, education, medical expenses and debt consolidation.

Deductions and Credits

The tax code provides multiple benefits for people who own their homes.

  • Mortgage Deduction: Homeowners can deduct the mortgage interest from their tax obligations. This can be helpful for many people because interest payments may be the largest part of a mortgage payment during the early years of owning a home.
  • Property Tax is Deductible: Property taxes paid on a primary residence or vacation homes are deductible for income tax purposes.
  • Help the Environment and Save: Energy-saving home improvements can earn homeowners additional tax breaks. Energy tax credits can be worth up to $500. Tax credits provide a dollar for dollar reduction in income tax liability.

Capital Gains Exclusion

When an individual sells assets they generally pay capital gains tax on any profits made on that sale. Homeowners may exclude up to $250,000 ($500,000 if married filing jointly) of capital gains from the sale of their home. There are specific qualifications that must be met.

  • You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
  • You did not acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
  • You did not claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude.


Freedom of Ownership

In addition to financial benefits, there are numerous personal and social advantages associated with owning a home. A sense of stability and security is one positive aspect. Not just for the homeowner(s) but also for children. Homeowners tend to stay in one place for longer periods of time compared to renters. This can allow children to stay in the same schools and build relationships with people in the neighborhood.

Other benefits include:

  • Homeowners reported higher life satisfaction, higher self-esteem, happiness, and higher perceived control over their lives
  • Better health outcomes, better physical and psychological health
  • Higher rate of high school graduation thereby higher earnings
  • General increase in positive outlook on life
  • Increased charitable activity


Homeownership, over time, continues to be one of the most secure ways to build long-term wealth. The combination of financial and social benefits strikes a chord with many people. Despite fluctuations in the housing market and at times financial turbulence; homeownership has been part of and will continue to be a component of The American Dream.

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