Does buying or renting a property in Florida make more sense?

Before you decide to rent or buy a place, your long-term goals, lifestyle, flexibility, and budget all need to be considered. As if this wasn’t enough to think about, the tax implications of, and potential credits associated with, each option should be reviewed.

If you’re thinking of moving within Florida, we’ve highlighted these considerations so that you can make a more informed decision.

1. Mortgage Interest Deductions

If you’re thinking of buying a property, it is important to know that you are able to get a deduction on your federal tax return for any interest paid on a mortgage.

This can be quite a large sum of money to be deducted but is dependent on the cost of the home and the amount that the monthly mortgage payments are. However, newer homeowners could benefit from a more lucrative claim amount considering that interest rates are usually at their highest in the years following the purchase.

Knowing that you could benefit from this deduction might help offset the cost associated with homeownership, in turn making it more affordable, and a detail to be considered. 

2. Insurance Costs

Another deductible that homeowners might be eligible for is home insurance. Yet despite a potential rebate, it might not be worth it for people living in Florida where insurance costs can be quite high. So, before purchasing a home, it might be worthwhile to explore the cost of insurance, which can vary greatly depending on the area chosen and if hurricane coverage is selected.

However, when it comes to renters, they shouldn’t expect to pay as high of a fee for insurance since they won’t be responsible for repairs or maintenance. This hands-off approach along with the cost savings can alleviate stress for people not wanting to deal with the hassle of homeownership.

3. Flexibility

One of the main benefits of renting a property is the flexibility that it gives people. Homeowners don’t have this luxury and instead have to deal with the costs and repercussions of selling.

Homeowners that sell their primary residence can typically get a capital gains exclusion, but to apply, they must meet the strict rules set out by the IRS. The IRS states that only owners that have lived in a home for two of the last five years during their ownership will be able to exclude $250,000 as a single filer or $500,000 for couples.

Although this rule could save some owners thousands, it won’t apply to anyone who used a home as a vacation or investment property. Knowing this prior to purchasing could skew your decision, especially if you don’t plan to live in it full time.

4. No State Income Tax

Many choose to move to Florida for the fact that both renters and homeowners don’t pay state tax.

Despite this major cost savings, anyone thinking of moving to Florida needs to consider all the upfront fees. Things like movers, inspections, down payments, and legal counsel, could stretch a budget thin.

If you’ve had a look at the numbers and are concerned about the cost, consider renting, where the initial fees are lower. This will give you more time to save for a down payment so you can purchase when the time is right.

Regardless of the decision you make, it’s important to explore the pros and cons of each. Our team at A.P. Accounting and Tax Services can help with this and give personalized advice on whether renting or buying makes more sense for you.

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