For decades, traditional personal finance advice has said that if you want to build wealth, you should buy a home. Owning a home is part of the American dream – even for Gen Z.
But nowadays, buying a house may not be the wise decision it used to be. In fact, it may even cost you money.
Read below to see why it’s cheaper to rent instead of buying, how that will affect your taxes and if that means you should put a pause in your home-buying search.
Is It Cheaper to Buy or Rent a Home?
As mortgage interest rates have risen and home prices have remained high, buying a house has become a luxury instead of a given.
According to data from the real estate website Redfin, in 2023, there are only four major metropolitan areas in the country where buying a home will be less expensive than renting.
These include:
- Houston, Texas
- Cleveland, Ohio
- Philadelphia, Pennsylvania
- Detroit, Michigan
One of the biggest reasons that it’s more expensive to buy a home is because mortgage interest rates have increased substantially in recent years. Interest rates have a huge impact on mortgage costs.
For example, let’s say you want to buy a $200,000 home and qualify for an 8% interest rate. In this case, your monthly payment will be $1,468. But if you had bought a home while rates were at 5%, your monthly payment would only be $1,074.
Tax Benefits of Renting vs. Owning
Renting
In some states, you can get a tax credit or deduction if you pay rent. There is no current federal tax deduction or credit for renters.
A tax credit can reduce your total tax bill, while a tax deduction will reduce your taxable income. Receiving a tax credit can be much more beneficial than a tax deduction. Below are some of the states that offer a tax credit or deduction to renters. But you don’t have to worry about knowing these rules because TurboTax will help determine what credits and deductions are available to help you get a bigger refund.
| State | Tax Credit or Deduction | Must meet certain requirements |
| Arizona | Credit | – Must be over the age of 65 or receive Title 16 SSI – Lived in Arizona the entire year – Meet certain income limits |
| California | Credit | – Must earn below a certain amount – Paid rent in California for at least half the year – Meet certain income limits – Can’t live with someone who can claim you as dependent – Not given a property tax exemption during the tax year |
| Colorado | Rebate | – Must be 65 or older, have a spouse who is 58 or older or be disabled – Lived in Colorado all year – Can’t be claimed as a dependent on someone else’s federal income tax return – Meet specific income guidelines |
| Connecticut | Rebate | – Must be disabled, 65 or older, or meet other criteria – Must have lived in Connecticut for at least 1 year |
| District of Columbia | Credit | – Depends on household income |
| Hawaii | Credit | – Must make below a certain income – Resident of Hawaii for more than 9 months of the tax year – Paid more than $1,000 in rent – Can’t be claimed as a dependent by someone else |
| Indiana | Deduction | – Available to all renters – Property must be subject to property taxes to be eligible |
| Iowa | Credit | – Must be at least 65 years old – Must make below a certain amount – Rent property that is not exempt from property tax |
| Maine | Credit | – Must make below a certain amount – Can not be Married Filing Separately – Paid rent on your primary residence in Maine during part of the tax year |
| Maryland | Credit | – Must be at least age 60 or older, disabled, or have a dependent child and make below a certain amount |
| Massachusetts | Deduction | – The rental must be your primary residence |
| Michigan | Credit | – Paid rent on your primary residence in Michigan for at least 6 months – Must make below a certain amount |
| Minnesota | Refund | – Have spent at least 183 days in the state – Must make below a certain amount – Can not be claimed as a dependent |
| Montana | Credit | – Lived in Montana for at least 9 months – Rented a home in Montana for at least 6 months – Must be at least 62 years old – Must make below a certain amount |
| New Jersey | Deduction or credit | – No requirements for renters claiming this tax break in New Jersey. |
| New Mexico | Rebate | – Resident of New Mexico for any part of the year and physically present in New Mexico for at least 6 months – Must be at least 65 years old – Meet income requirements – Not eligible to be claimed as a dependent of another taxpayer – Not an inmate for a period of more than 6 months |
| New York | Credit | – Lived in the same New York resident for at least 6 months – Be a New York state resident for the entire year – Must not exceed certain limits for rent expenses and owned property – Must make below a certain amount – Can not be claimed as a dependent |
| North Dakota | Refund | – Must be at least 65 years old or disabled – Meet certain income requirements |
| Pennsylvania | Rebate | – Must be at least 65 years old, a widower at least 50 years old, or at least 18 years old and disabled – Meet certain income requirements |
| Rhode Island | Credit | – Lived in Rhode Island for the entire calendar year – Must be current on all rent payments – Must be at least 65 years old or disabled – Meet income requirements |
| Utah | Refund | – Lived in Utah for the entire calendar year – Must be at least 66 years old or a widower of any age – Meet income requirements – Can not be claimed as a dependent |
| Vermont | Credit | – Must meet income requirements – Lived in Vermont for the entire rear and rented for at least 6 months during the year – Can not be claimed as a dependent |
| Wisconsin | Credit | – Lived in Wisconsin from January 1 through December 31 – Must earn below a certain amount – There are some age restrictions – Can not be claimed as a dependent – Are not receiving certain benefits or other credits |
Owning
The federal tax code is an ever-evolving institution, especially concerning politics. Before the 2017 tax law, the standard tax deduction was $6,500 for individuals and $13,000 for couples. Now, the standard deduction for 2023 is 13,850 for those filing single and $27,700 for couples who are married filing jointly.
You can only deduct mortgage interest if you itemize your taxes. But because the standard deduction is so high, fewer people take advantage of the mortgage interest tax deduction.
Why You Should Buy a Home
Control Over Home
Buying a home isn’t necessarily a financial decision; it’s an emotional and lifestyle one. Having a house means that you can have as many pets as you want – without having to check with your landlord. It also means you can tackle home repairs quickly without waiting for approval.
You also have carte blanche to decorate any way you want, like painting every room, tearing down a wall, or installing your own light fixtures.
Stable Housing Costs
Your monthly housing cost will generally stay the same when you have a mortgage. This gives you a predictable amount to budget with. And while property taxes may cause your payment to possibly increase over time, those surprises should be less than potential rent increases.
Why You Should Rent
More Freedom
As a renter, you have the freedom to pack up and move any time you want. While you may have to pay a fee to break your lease, it’s still a lot less hassle than listing your home and waiting for a buyer. In some cases, selling a home can result in you losing money.
Fewer Surprises
Talk to a group of homeowners, and you’ll inevitably hear stories of someone waking up to discover water flooding in their basement or the AC going out in the middle of a heat wave.
When you’re a homeowner, you’re the one responsible for major repairs. But as a renter, you simply have to call the landlord and ask them to fix it. It’s never your responsibility to worry about.
Should you hold off buying a house?
Buying a home should not simply be a financial decision. You need to be emotionally ready to buy a home and prepared for the responsibility of homeownership.
Remember, the mortgage isn’t the only cost of owning a home. You should also budget about 1% of the home’s value for maintenance and repairs. And many renters discover that their utility costs are higher with a home than with an apartment, especially if their landlord covered part of that cost.
Owning a home can also be a considerable time commitment. You have to take care of the snow, the leaves, and worry about the grass. And if you can’t afford to outsource those tasks, you’ll be spending your weekends doing house maintenance.
If you do decide to own a home, remember who do not need to know the tax rules because TurboTax will help determine what credits and deductions are available to help you get a bigger refund. Meet with a TurboTax Full Service expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.
