It surprises me how few home buyers/homeowners understand this “get out of taxes” free card. The program is known as the Principal Residence Exemption. In short, it means that you can sell your primary residence every two years with no capital gains tax, up to $250k profit for single and $500k profit for a married couple.
Most people buy a home thinking they will live there for the next 20-30 years, raise the kids and pay it off one payment at a time. This is all fine and good but if you’ve ever taken a close look at the Good Faith estimate in regards to a mortgage, it states the amount of interest you will have paid for the money over the lifetime of the loan. It is absolutely frightening! For example, a $250,000 mortgage at a relatively low interest rate of 3.75% APR amortized over 30 years will cost you $166,804.03 in interest alone! Then add in the $250,000 you borrowed and you are at a whopping $416,804.03. Yes, that $250,000 house will cost you close to half a million dollars! This is without the cost of closing costs,property taxes,maintenance and insurance, which will soar past the half a million mark. Home ownership isn’t cheap.
We need to be smart about buying a home. Karrie and I have used the Primary Residence Exemption several times. In fact, we used the program with the strategy of paying our house off in a very short amount of time. We bought our first house in 2002 and by 2010 paid cash for our third primary residence. In 8 years we went from virtually no equity to having a home worth $415,000 free and clear, no mortgage! It wasn’t easy and it obviously wasn’t overnight but in 30 year mortgage terms, it was pretty quick. We moved 4 times, did it through the great recession but in the end, we don’t have that burden of a large mortgage. It changes your life! I know it’s not for everyone but when considering the costs of staying put for many years, you almost can’t afford to not utilize it. If you want to learn more about my experience utilizing this generous tax exemption, contact me any time.