Buying Versus Owning a Home In Arizona

You are thinking about which is best for you—buying versus owning a home in Arizona.  While you might think this is a lifestyle only decision, it is far from it.  As you many people over the last five or six years learned that it is very much a financial decision.  A decision at least as important as how you care for choosing between savings, accounts, stocks, bonds, mutual funds, ETFs, etc.  And like any financial decision, weighing the risks versus the benefits both short and long term is just sound thinking.

Advantages of owning a home versus renting a home in Arizona

  • Loan Interest Tax Deductibility You can deduct the cost of your mortgage loan interest from your state and federal income taxes. Since interest generally will account for most of your payment during the first half of your mortgage, the savings can be significant. Some of your costs at the time of closing (including prepaid mortgage interest) can be taken as deductions on that year’s income tax return, and points paid up front at the time of closing represent additional mortgage interest and may be taken as a deduction.
  • Property Tax Deductibility You can deduct all of the property taxes you pay from your federal income taxes.
  • Appreciation Potential Real estate is considered a good long-term investment because it usually appreciates in value. The effects of borrowing potential can increase as the value of the home appreciates.
  • Capital Gains Exclusion When it’s time to sell your home the amount of capital gains you have to pay is reduced. A homeowner can exclude up to $500,000 per couple if married and filing jointly, or $250,000 if single or filing separately for homes that have been the taxpayer’s principal residence for the previous two years.
  • Capital Gain Treatment Congress allows preferential tax treatment on gains from capital assets held for more than one year. This would be important for a homeowner who has gains in excess of the allowable exclusion.
  • Principal Accumulation Mortgages are designed to pay the interest for the time that the money has been used, as well as to retire the principal debt over a period of time. This payment plan means that part of the payment each month is for principal accumulation.
  • Personal Enjoyment Pride of ownership is a valid reason for wanting to own a home. You can personalize your home while enjoying the financial benefits.

And always I recommend you consult with your financial advisor to assist you in evaluating your specific situation.  In this regard, an ounce of up front financial evaluation is worth a pound of cure.  Trust me, many people who failed to take in to account their total financial picture now find themselves as renters with ruined credit as a result of the real estate market collapse a few years ago.