What Are the Benefits of Property Ownership?

There are many benefits to property ownership.

Property ownership offers a variety of financial benefits. Advantages of owning land or a home can include tax deductions, cash returns on the initial investment, and potential borrowing power. Many factors play a role in these benefits. The duration of ownership, property location and property value can enhance or decrease these benefits.

Tax Deductions

Property owners may qualify for a tax deduction for payment of property taxes. To qualify for this real estate deduction, you must have paid applicable property taxes for the year in which you claim the deduction. This benefit of property ownership applies to land ownership, private property for homeowners, and rental properties. To claim a deduction, the property owner must fill out itemized deductions on form 1040, Schedule A. Other applicable tax deductions can include mortgage interest and home acquisition debt.

Investment Returns

One benefit of real property ownership includes returns on the property investment. Real property constitutes not only land, but structures and/or improvements to the land that are not subject to removal. Increased value of this property, called appreciation, depends on fluctuating market conditions and the property's location. Appreciation returns may not be readily available because they may take years to accrue, but over time appreciation yields the greatest returns to the property owner. A lesser return, the before-tax cash flow or annual property return, can provide immediate financial gain but can be quite small. The maximum benefit of the tax cash flow may also take years to achieve. An example of before-tax cash flow includes income received from renters.

Collateral

Benefits of owning property include the ability to borrow against the value of your property. Homeowners can obtain loans using the equity in their home as collateral. These loans are secured by the property, guaranteeing repayment of funds. Many lenders require some type of collateral when considering loan applicants and, unlike other forms of collateral, property tends to maintain and increase in value. However, you stand to lose your property if you do not meet the financial obligation by making your loan payments.

References

• U.S. Internal Revenue Service: Topic 503 Deductible Taxes
• Eastern Michigan University: Investing in Real Estate
• Longwood University: What is “Real Property”?
• University of Minnesota Extension: Security Interests in Personal Property
• U.S. Internal Revenue Service: Limitations on Home Mortgage Interest Deductions