Owner-builder = Tax Free Income
One of the best ways to save money by owner-building, is in just doing it. If you build your own house, and you save a bunch of money doing it, meaning you build a $350,000 house for $250,000, you have increased your value by $100,000 and that money has not been touched by taxes of any type. Sounds pretty good right? Who would not like to have $100,000 tax-free income, and get the house of their dreams in the process?
It is worth repeating that one of the very best ways to make tax-free money is by owner-building. Is this really possible, how can you earn money and not have it be taxed? You certainly can't get these results by winning the lottery! Even if you were to be given money you would probably have to pay taxes on it, so how is this possible? Well, think about it this way, the money you save in building your house is untouched by state, federal, property, etc. taxes. How? It goes directly, untouched, into the equity of your home, which of course also makes your net worth higher.
Instant Home Equity
Now, this may not seem like tax-free income because it is just sitting in your house. But, having a higher appraisal value on your home than your loan amount generally means lower rates, you may not have to pay PMI (property mortgage insurance), and if you sell, it is profit. Or you could simply refinance, and pull it all out tax free. So, as you can see, these tax-free savings are BIG savings. For example, on a $100k refinance you are in the average tax bracket 30%, that is $30,000 extra, tax-free money in your pocket. And, if you sell, you could pay off your home loan and have all that extra money, and not have it be taxed.
How is this possible? Well, you can finally thank the government for the biggest tax break to homeowners ever! This came in the form of the 1997 Taxpayer Relief Act which basically says that if you are married you can keep up to $500,000 in house profits without paying any taxes on them as long as you have lived in the house for two of the last five years. You do not even have to buy another house, or build another house with that money. Isn't that great?
Home Building Advantages
So, in other words, you can make a tax free income by simply taking advantage of tax laws. You build your house, and by doing it yourself get some equity right off the bat. You live in it for two years, which you enjoy because you built it so it is just how you want it, and then you sell it, and you keep all of that built in equity as tax-free income. Sounds like a good scenario, right? You get paid to live in the house of your dreams, and you learn how to be your own GC in the process, so you can turn around and do it again and keep on making this tax-free income for as long as you want.
Now you may take that tax-free money and put it towards your next dream house, you might buy a boat, pay off debt, etc. It does not matter what you do with it. As long as you lived in the house for two years (which you have to be able to show by your driver's license address, bills sent to you, etc.), you can keep the money as cash and not pay a dime in taxes, up to $250,000 for a single individual, and $500,000 for a married couple. So, why not try being an owner-builder? Get out there and make yourself a huge income, and don't pay anything in taxes to do it.
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Tags: owner-builder home-building home-construction taxes home-equity
