Is it better to buy or rent a home?

Crunching the numbers on the perennial real-estate question

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By Eva Rosenberg, MarketWatch

Despite the fact that home mortgage interest rates are near record lows, only 65.4% of Americans own homes, according the U.S. Census Bureau’s 2012 report. (See Homeownership Rates by State: 1984 to 2012) In fact, home ownership in the U.S. is at its lowest level since 2004, when 69% of Americans owned homes.

Of course, home ownership can eat up not only your free time, but your money as well. Is the American dream worth the hassle? To find out, let’s look at it from three angles: taxes, costs, and quality of life.

Are there still tax benefits to home ownership these days?

Back in the days of 8% mortgage interest rates, you were sure to get a generous mortgage interest deduction on your tax return. Add that to the property taxes, and you’d get a nice tax reduction. But what about today, with average national interest rates at 3.46%, according to Zillow.com? See Current mortgage rates and home loans.

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The U.S. Census Bureau says that median housing costs for 2012 are $185,200. Assuming you put 10% down, your mortgage would be around $166,700. Your monthly payment, including principal and interest, would be under $750. Your interest expense would be around $5,000 a year. And if your property taxes were around 1% of the property value each year, you’d be paying about $1,850 per year. See Median property tax rates by state.

So, you’re looking at a total tax deduction of less than $7,000 a year. Oops! The standard deduction for a married couple filing jointly in 2013 is $12,200. So there’s no tax benefit here. A single person’s standard deduction is $6,100. So the net income reduction is $900. Even in a 25% tax bracket (plus 5% for state), that only saves you about $300.

These costs will enable some more folks to itemize, when taking into account their high state income taxes, charitable donations, and medical or business expenses. But remember, your real benefit is only the itemized deductions you get, in excess of your standard deduction. See Tax planning: Standard Deduction.

Suppose your increase in deductions is $3,000? Using the same tax bracket, that would be worth about $1,000 in tax savings.

Do the financial benefits outweigh renting?

Read More: http://www.marketwatch.com/story/is-it-better-to-buy-or-rent-a-home-2013-02-22?siteid=rss&rss=1&utm_source=dlvr.it&utm_medium=linkedin