One of the many benefits of owning your home, in lieu of renting, is that Uncle Sam (IRS) and most state governments allow you to deduct (within parameters) mortgage interest and property taxes, when it comes time to file your income tax returns.
When you file your
IRS form 1040, the mortgage interest and property taxes you've shelled out on your home, over the year, are itemized deductions on
IRS form schedule A.
On a mortgage loan, you may deduct the first $1,000.00 of debt as well as all of the property taxes. IRS will allow you to also deduct the interest costs on a home equity loan (second mortgage) to a maximum of $100,000.
Because you pay federal and state taxes, you should also consider your state tax savings when calculating your overall home-ownership savings.
For a simple calculation, multiply your property taxes and mortgage payment by your federal income tax rate. To find your income tax rate, go to the IRS website -
2006 Federal Tax Schedules.
This calculation works because the small portion of your mortgage payment that's not deductible - (for the loan payment) - will offset (approximately) the overlooked tax savings.
Here is a formula for calculating the total monthly house payment for your
new home:
- Mortgage Payment: $____
- Property Taxes: (+) $____
- Insurances: (+) $____
- Maintenance and Improvements: (+) $____
- Home-ownership Expenses (pre-tax): (=) $____
- Tax Savings: (-) $____
- Home-ownership expenses (after-tax benefits): (=) $____
With your expected home-ownership costs calculated by this formula (after factoring in the tax benefits of home-ownership), you can decide if you want to spend this amount on a new home and still be able to accomplish your remaining financial goals.
04-27-2007, 02:11 AM
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