Beacon Hill condo ownership is a dream most of us would like to achieve. It’s not uncommon for many of us catch ourselves imagining the perfect Beacon Hill home and what it would be like to live there. Whether it be that beautiful town home overlooking the Boston Common, or the Public Garden; we’ve all been guilty of these fantasies at some point in our lives. Although some of us may never be able to attain that fantasy “dream home”, for many, there is still a strong desire to own a home. Aside from the obvious benefit of having a roof over your head, owning a home has many benefits.

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PRIDE OF BEACON HILL OWNERSHIP

The first benefit of owning a Boston condo is just that, you own your home and it is yours to do what you would like. Contrary to renting a Beacon Hill apartment, you are no longer restricted to certain paint colors, appliances, permanent fixtures and other landlord restrictions. You have the opportunity to make it your space, catered to your likes and needs. From knocking down walls renovating the kitchen, owning a home is an opportunity to invest in your family’s future. By owning a home you also become a member of a neighborhood or community. Typically, certain areas will have different “vibes” to them, so be sure that the home you are considering is in an area that you enjoy and see yourself comfortably becoming a part of.

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BUILDING WEALTH OVER TIME WITH APPRECIATION

As far as the economic benefits of owning a Beacon Hill condo, appreciation and building equity are key. We have all been taught that owning a home is a good financial move. After all, it’s how many of our parents and grandparents built wealth over time. However, in the past decade, we have seen a period of turbulence in the Boston condo market, leaving many with lost confidence. This doesn’t mean that owning a home is no longer a good financial decision, it simply means that you need to own the right home. So, what is the right home? It is a home that fits your personal needs and finances. The reason that so many were caught up in the financial crisis of 2008, was that they were living outside of their means. Just because you have been approved up to a certain amount for a loan does not mean that you need to spend that much.

Over time, most communities will see their home values appreciate. Appreciation is the increase in value of an asset over time, meaning how much your home is worth today compared to when you purchased it. Obviously there are no guarantees as to what will happen in the future, but historically home prices have risen over time.

Equity is the portion of the asset that you own. Most homeowners use some form of financing when purchasing a home, meaning that although you are living in the home and “own” it, you are still paying towards the portion that you borrowed. As you make your monthly mortgage payments, a portion of each payment is going towards the principal (amount that you initially borrowed) and a portion is going towards interest (cost of borrowing). With each of these payments, you are effectively taking a bigger piece of the ownership and once you have completed all the payments you will own the home “Free and Clear”.

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TAX BENEFITS OF HOME OWNERSHIP

Owning a Beacon Hill condo and investing in real estate can have great tax advantages. Many of the costs associated with home ownership are tax deductible, meaning they reduce your tax liability which saves you money. So, you may ask, what are the costs that you can deduct?

– MORTGAGE INTEREST

If you used financing to purchase your home, you can deduct the interest portion of your payments up to a total of $1,000,000.

– POINTS

A point, or points, is a term used to refer to 1 percentage point of the purchase price that is due up front when closing on a home. For example, if you are receiving a 30 year loan for $150,000 at 5% interest plus a point, that means that at the time of close, you will pay the lender $1,500 ($150,000 x 1% = $1,500). This is another expense that can be deducted from your taxes.

– PROPERTY TAXES

Any state or local taxes that are paid on real estate are fully deductible for income tax purposes.

– CAPITAL GAINS

Capital gains is the tax on the increase in value of your asset (appreciation). This only comes into play when you sell your home. However, if the home that you purchased is to be used as your primary residence for at least 2 years, you will qualify for capital gains exclusion. What does this mean? As long as you have lived in your home for 2 of the 5 years before the sale of the property, up to $250,000 ($500,000 for couples who file a joint return) of the profit you’ve earned on the increased value of your home is not taxed. This can be a huge benefit, especially if you have seen your home appreciate dramatically.

– 1031 EXCHANGE (FOR INVESTMENT PROPERTIES ONLY)

If you noticed in the paragraph above, in order to be eligible for the capital gains exclusion, you needed to live in the property for 2 of the last 5 years. So what if this is an investment property that you never lived in or ever intend to live in? This is where the 1031 Exchange comes in. A 1031 Exchange can only be used on investment properties and it allows you to avoid capital gains tax as long as you take the proceeds of selling the investment property to buy another investment property of equal or greater value. This is a huge benefit to real estate investing and a trick that many wealthy investors take advantage of. Our CPA always says “Swap, swap, swap, until you drop”. Using a 1031 Exchange means that you can continue to build your investment portfolio without ever having to pay capital gains tax as long as you don’t “cash out”.

Beacon Hill condo ownership and the bottom line

Now that you understand some of the many benefits of owning a Beacon home, it’s time to ask yourself if owning a home is right for you. There are many factors to be considered when it comes to the decision of purchasing a Beacon Hill condo, and although there are all these benefits. You still may be able to benefit in owning a home for a shorter period, but typically you will lose some of your gains in the transaction costs. However, if you are planning on staying in a city for at least two to five years, owning a Beacon Hill home can provide you with great long-term financial rewards.