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When Does It Make Sense to Rent and Give Up the Tax Benefits I’d Get From Owning Real Estate?

When It May Make Sense to Rent and Give Up the Tax Benefits You'd Get From Owning Real Estate

The tax benefits from owning your home can be significant and very helpful at tax time. Luckily, the U.S. government has allowed most deductions for home ownership to remain active. However, as most experts would state, it is seldom a wise idea to make an investment purely for potential tax benefits. Owning real estate versus living in one of the many apartment rentals available is no exception to this policy. There are circumstances in which choosing apartments or homes for rent may make more sense.

Your tax bracket is a modest one. Many tax advisors have the opinion that, unless you're in a 25% or greater income tax bracket, real estate deductions are often unimportant. The standard deduction is now high enough to help those in a lower tax bracket enough to render real estate deductions an option, not a virtual necessity.
Your need for mobility, because of work or personal circumstances, outweighs the potential tax benefits. When life situations -- personal or professional -- indicate you need the ability to move either quickly or often, owning your home might result in your losing money greater than the level of tax benefits you'd enjoy.
Your mortgage is very low. Once your mortgage balance drops to certain levels, in addition to your joy, the interest deduction becomes less significant. Once that happens, the remaining primary deduction category, real estate taxes, is often insufficient to justify using tax benefits as a reason to own property. You might enjoy one of the many luxurious available apartments for rent far more than your house.

These are but a few logical answers to the question, “Why do people rent?” In these and other situations, the help that tax benefits of homeownership is outweighed by other financial or personal considerations. In recent years, some states have even instituted some allowable deductions for renters in income tax situations. These new benefits further cloud the question, rent or buy?

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