End of Chapter 5 Questions and Answers

End of Chapter 5 Questions and Answers - End of Chapter 5...

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End of Chapter 5 Questions and Answers 1. Explain how the U.S. taxation laws encourage homeownership. Answer: The higher a person’s income tax rate the more likely they are to become a homeowner, as the after tax costs are reduced in proportion to their tax rate for mortgage interest rate payments and property tax payments. Current tax laws allow elimination of capital gains taxes excluding up to $250,000 of Gain every 2 Years. Married couples may exclude up to $500,000 with a joint tax return. Once a person has entered the home ownership cycle in the U.S., and has significant gains from appreciation, the ability to postpone all taxes by using the resale price of the last home including the gain on a future purchase within 24 months encourages home owners to stay home owners. Also, the ability to exclude up to $250,000 of capital gain as often as every 2 years adds to the investment appeal of home ownership. 2. Name three reasons why it might be more economical to rent even when you can afford to buy a home? Answer: Tenure of stay: Renters can maintain their mobility and reduce transaction costs of buying and selling property. High transactions costs mean that it is often not economical to buy a home for shorter terms, i.e. 3 years or less. Investment aspects:
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End of Chapter 5 Questions and Answers - End of Chapter 5...

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