Rent or Buy Houses

Introduction

The decision of weather to own or rent a house can be challenging to majority of individuals in Canada. The challenge of whether to own or rent a house is associated with some advantages and disadvantages that can have various effects to individuals’ financial status. In Canada, the decision to rent or purchase a home can be determined by a number of financial issues that are associated with home ownership rental. Some of the financial implication that are considered when making decisions to own or rent a house include the tax issues, depreciations and appreciation of homes, the available alternative investments and the cost associated with home ownership (Poterba & Sinai, 2008).

Arguments in Favor of Home Ownership

Home ownership has a number of advantages that are associated with various tax deductions in Canada. Individuals who own homes in Canada are given special tax treatment which makes buying homes to be more advantageous than renting. The owners of home are provided with a number of tax incentives.

One of the tax deductions that are enjoyed by home owners is associated with the depreciation of the financial value of homes. The expenses that are incurred by home owners as a result of depreciations are deducted from the tax hence make individuals home owners to pay low tax. Other forms of tax deduction that home owners in Canada enjoy include renovation expenses, lighting expenses and heating expenses. This expenses are important in keeping the house in good condition and do not add value to the house. Activities such as painting are included in the repair expenses. These expenses are deducted from the tax incurred in a given year. This makes home owners to pay low taxes in Canada.

Home owners in Canada are also allowed to deduct certain travel expenses that involves long distances business travels within the country. The travel expense benefits however do not include expenses incurred when travelling from home to places of work or businesses. The travel expenses can be calculated through the use of standard mileage rate for those who own cars. It can also be calculated in terms of the expenses incurred to purchase fuel or maintain the vehicle. Other deductions that can be made by the owners of home include parking fees, car loan interest and license fees.

Another tax advantage that is enjoyed by homeowners in Canada is the deduction of certain interest incurred from the tax charged on a given year. The home owners in Canada are allowed to deduct interest incurred on some of the expenses from the amount of tax charged. Some of the interested that are allowed for deduction include interest that accumulates from mortgage loans, car loans and interest related to credit card payments (Poterba & Sinai, 2008). It is however important to note that all the interest allowed for tax deduction should be business related. Interests incurred as a result of private transactions that are not business related are not included in this category.

Homeownership also enables individuals to have an option of obtaining a loan using the property as the collateral. This can make an individual to be able to raise a mount of capital for business or any other transactions. This makes them to be financially secure as they are able to meet some of the emergency needs when faced with an emergency situation.

Arguments against Home Ownership

Despite various advantages that home owners enjoy due to tax deduction, there are a number of disadvantages that home owners face. The arguments against the ownership of home by individuals can be explained by various cost and expenses that are associated with purchasing homes. The argument against the ownership of homes can be based on various financial calculations that indicate the cost and expenses that are associated with purchasing of homes.

Most homes among other assets often loose their values due to depreciation. Although it is a fact that value of some properties such as land can appreciate over a given period of time, most assets are often characterized with depreciation. It is also true to argue that the value of homes rises over a period of time; this in most cases is associated with a rise in inflation rate. This implies that the real value of a house can not have a significant gain through appreciation. Hence it can be misleading that the increase in the price of a home over a period of time is occasioned by appreciation.

The mortgage interest paid by home owners is huge and can not be compensated by the tax deductions that are enjoyed by home owners. Most of the home owners in Canada purchase homes using mortgage facilities. This makes them liable to paying mortgage interest to the mortgage firms and financial institution. The rate of mortgage interst paid by home buyers is high and contributes to high cost of purchasing the houses.

Home owners often are tempted to borrow huge a mount of money that may prove difficult for them to pay. Most of individuals involved in purchasing of homes do not consider factors such as the price and cost of obtaining the house. This can lead to borrowing of huge amount of money that might become difficult to pay by the home owner. In most cases, home owners only consider the location, quality and design of the house and disregard the price and cost associated with the house. The burden that is associated with paying huge interest to the mortgage firms can affect the financial health and stability of individuals.

The costs that are associated with the purchase of a house are high. Purchasing of a house requires the home owner to incur expenses that are aimed at maintaining proper condition of the house. Some of the costs that are incurred regularly by home owners include repair and maintenance costs (Poterba & Sinai, 2008). Other expenses that are also incurred by home owners include depreciation expenses, heating and lighting expenses. These costs can contribute significantly to the original cost of the house hence making home owning an expensive initiative.

Favorable factors for home ownership

Although home ownership is associated with various benefits, there are various factors that can make home ownership favorable to me after completion of my education and acquiring a regular job. One of the factors that can motivate me to own a home is the tax incentives that are associated buying a home. Owning home in Canada has numerous tax incentives that are associated with it. The tax deduction accorded to home owners can help enhance the income of individuals significantly. This can increase their purchasing power hence enable them to have improved standard of living. Some of the tax deduction that are favorable and can influence the decision of individuals towards owning a home include business travelling expenses, heating and lighting expenses and depreciation expenses. The expenses incurred as a result of repair and maintenances are also subjected to tax deduction. The tax deductions accorded to home owners makes them have more financial privileges’ than individuals who rents houses.

Factors favorable for renting

Renting a house is also associated with some favorable factors that can play an important role in influencing me to rent a house. Some of the factors that are favorable to renting a house include provision of an alternative investment imitative. The money that an individual intends to use in purchasing a house can be used in alternative investments that are productive and profitable. The money can be used to secure investments that are more profitable than purchasing a home. This can enable a person to earn significant income from the investment as opposed to spending the money in purchasing a house.

Impacts of Tax Advantages for Ownership

The tax advantage for ownership of home in Canada has both bad and good effects. The tax advantage can encourage ownership of houses in Canada. Many residents of the country can be attracted to own houses due to the available tax privileges. This can help improves the general welfare and living standard in the country. It can also encourage development of houses in the country and this can contribute to the growth of real estate industry. Real estates industry can offer employment opportunities to various citizens of the country hence raise the living standard and income in the country.

However tax advantages are also subject to some disadvantages in the country. One of the disadvantages of tax incentive is that it is discriminatory in nature. Since the privileges’ of tax deduction is only enjoyed by home owners, majority of individuals who rent houses will feel neglected. Another disadvantage is that it reduces the revenue collection of the country. As a result of tax advantages, the revenue collection of the country can be reduced significantly.

Reference

Poterba, J., & Sinai, T. (2008). Tax expenditures for owner-occupied Housing: Deductions for

Property Taxes and mortgage interest and the exclusion of imputed rental income. The American Economic Review, 98(2), 84-89.