The Tax Advantages Of Owning A Home As A Veteran
Did you know that when you execute your PCS you can also take advantage of an amazing investment opportunity? In this video, I’m going to walk you through the tax advantages of being a veteran, what those mean to you, and how they changed my life. I’ll share my story and show you how to make the most of your veteran benefits.
How I Became A Homeowner
PCSing and going across the country to a new duty station is extremely exciting. In fact, it’s one of the most exciting things about our jobs. It’s also a great opportunity to make a huge investment in your future by purchasing real estate.
Everybody always talks about purchasing a home as some kind of mundane task. After all, why wouldn't you live somewhere inside of a home? However, nobody talks to you about the tax advantages. Buying a home can also financially set you up for your next move—whether that's cross country, you're retiring and transitioning, or you’re just looking to do something different than being in service.
When my when I met my wife, both of us had a common goal of purchasing a home. To do that in Southern California is tough, as it’s one of the most challenging markets. We decided that we both had to give up where we were living, combine our budgets and our income, and purchase a home in San Diego County.
When we did that, little did I know that it was going to change our lives and set us up for our next steps. It allowed us to continue to grow and mature as a family and also as young professionals.
Should You Buy A House?
Have you ever had your accountant, grandparent—or somebody that's just really annoying and boring because they love numbers—tell you that you need to go buy a house? At the time, you just didn't understand it. You probably wrote them off because you didn’t really want to take their advice, and maybe because you don't want to be like them.
But what if I told you that they're right? The reason that they're right is that you get tremendous tax advantages when you buy a home. They're probably just trying to tell you that they love you but don't know how.
As service members, we have so many good benefits. The best one that you have by far is your VA Home Buying benefit. Using this benefit sets you up for tax advantages. One thing that everybody gets when you don't live on base is your housing allowance. You’re going to use that housing allowance no matter what. So would you rather pay it to yourself or pay it to somebody else?
That is where the real advantage is, and that's what the benefit is of being a service member is. What you need to know is this: 100% of the interest that you pay on your VA loan is deductible, and that is powerful.
Your Tax Advantages
Let’s look at an example of how this works. Everybody knows Lance Corporal Joe Schmuckatelli. He makes $50,000 a year and also pays $8,000 of interest on his mortgage each year. This means that Joe Schmuckatelli would be taxed on $42,000 that year versus the $50,000 that he made that year before he paid interest.
In addition, Joe Schmuckatelli has a $7,000 property tax bill—which is also deductible. That means that Joe Schmuckatelli will be taxed at $35,000 a year versus $50,000 a year. Depending on what state you're in (like California), that can be a very big deal.
Each and every month, you're going to get an allowance for housing. How you spend that allowance for housing is up to you. You can purchase your own home, essentially paying yourself. Or, you can go rent and pay somebody else's mortgage. Either way, that money is going to be spent, because you have to exist near where you are PCSing to.
How We Benefited
In the case of myself and my wife Laura, we decided to take advantage of that opportunity. We took those tax advantages, and it set us up for success in building and growing her business. Of course, that's not the primary advantage of owning your own home.
When you live in your home for over two years, you then have the ability to avoid paying taxes on capital gains when you sell that home during your next PCS. For example, let's say you purchase a house in San Diego County, which I'm familiar with. Over the course of three years, that house gained equity of $85,000. That $85,000 is 100% tax-free the day that you sell that home.
Veterans can buy homes and get paid to take advantage of tax advantages in the future. That way, when they PCS to the next duty station, it puts money in their pocket.
Making A Wise Investment
I hope this video has helped you identify the tax advantages of owning a home as a veteran or active service member. One of the best things that we can do to set ourselves up for an investment and financial success beyond our military careers is to purchase a home. I hope that you think about that and put it in your calculus when you decide to PCS, considering what those actions may be when you do execute them.
If you're looking for more information, feel free to reach out to me and I’d be happy to connect with you. If you're looking to relocate into the San Diego area, that's where I'm going to be your boots on the ground. I’ll help you find the right neighborhood for your family and help you choose where you need to be. And if you’ll be somewhere else, I have a network of people across the nation—specifically around all of those Marine Corps and naval bases—that would love to help you, too.
Don’t forget to subscribe to my channel so you never miss an episode of my show, all about helping veterans realize their real estate goals. Stay tuned to see what I feature next!
