Many people erroneously view owning property as an increase to their tax burden. The constitutional amendment Measure 50 approved by Oregon voters in 1997 ties property taxes to assessed value as opposed to market value. This causes property taxes to only increase three percent per-year, which means that your assessed value is still most likely below the market price.
Even despite property tax increases, there are still many tax advantages to owning a home. For example a homeowner with a 30-year fixed rate mortgage of $200,000 could expect to pay about $10,000 in interest, with an additional $2,400 in property taxes. By itemizing these payments on a Schedule A, they can reduce their taxable income by $12,400. The homeowner’s gain is even higher if appreciation on the property is added.
In the Housing and Economic Recovery Act, a first-time homebuyer is currently entitled to a $8,000 tax credit. This credit will reduce taxes or even provide a refund unless the home ceases to be the homeowner’s principal residence within three years from the date of purchase. In addition, a long-time homeowner may now qualify for a $6,500 credit if a replacement home is purchased after November 6th, 2009. This creates a credit for divorced individuals buying new homes.
If you are planning to buy a home in the near future, be sure to calculate the amounts of appreciation and tax savings. Just remember that these examples are intended to provide a general idea of how home ownership might be applied to taxes and income. You should always consult with a tax advisor for information relating to your specific circumstances.
Special thanks to Lori Manley (LoriM@Cascaderm.com) at Cascade Mortgage for additional tips.