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Buying a Home the Most Valuable Tax "Loophole" Available Today

ElectionOracle / US Housing Feb 13, 2015 - 06:28 PM GMT

By: DailyWealth

ElectionOracle

Buying a Home the Most Valuable Tax "Loophole" Available Today

Brett Eversole writes: The government seems to spend its time finding ways to increase taxes...

In 2013, income taxes for America's top earners increased. And in last month's State of the Union address, President Obama proposed capital gains tax increases among other changes.


The only things certain in life are death and taxes, as the saying goes. But if you haven't already, you can still take advantage of one of the most powerful tax loopholes available... your home.

For most individuals, buying a home is a powerful tax shelter. In fact, I can't think of an asset that has more government incentives than the home you live in.

Let me show you what I mean...

First, you can deduct the interest on your mortgage off your taxes. You can also deduct certain other expenses, like insurance and property taxes. Depending on your income tax bracket, this could lead to tax savings of a few hundred dollars a month.

But that's the small stuff. The major tax advantage comes when you sell your home...

This is probably the best tax loophole available today... The government allows you to keep up to $500,000 in capital gains, tax-free. (Depending on your filing status.)

That's not a typo. If you're married, you can keep up to half a million dollars in profit on your home sale without having to pay any capital gains taxes. And that benefit could have a massive positive effect on your net worth.

For example, say John buys a $250,000 home and Jill buys $250,000 in stocks and bonds. After 20 years, both have increased in value to $750,000 – a $500,000 increase.

When John sells his home, he pays no taxes. He walks away with the full $750,000. Jill, on the other hand, has to pay capital gains taxes on the $500,000 she gained. Today, that would leave her owing 20% to the government – or $100,000.

Jill would walk away with just $650,000... 13% less than John.

This is truly the most valuable tax loophole available today. And all you need to do to take advantage of it is own a home.

Importantly, buying a home is still a good investment decision today. Housing is still incredibly affordable... and that means higher prices are likely from here.

We've written about housing affordability many times in DailyWealth. (See here, here, and here). It's a simple idea...

Housing affordability compares three things... income, home prices, and mortgage rates. These three factors tell us if typical incomes can pay for typical mortgage payments.

Today, affordability sits well above its historical average. Home prices would need to rise around 30% for affordability to move back to normal.

This tells us that there is still upside in U.S. housing. And that the most valuable tax loophole available is still a prime opportunity.

If you don't already own a home, it's a tax loophole you should consider today.

Good investing,

Brett Eversole

Editor's note: If you'd like more insight and actionable advice from Brett Eversole, consider a free subscription to DailyWealth. Sign up for DailyWealth here and receive a report on the five must-read books on investing. This report wills how you how all of the DailyWealth team's "must read" books, which will help you become a better investor right away. Click here to learn more.

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The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

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