Consider the federal tax benefits that you receive as a homeowner. Both interest and property tax can be written off. In the early years of your mortgage, this write-off is substantial. They will slowly decrease as the share of principal versus interest in your loan increases, but the first few years are the most important.
The following information is not intended to be tax advice. It is highly recommended that you consult your tax professional. Regardless, the following can be considered general knowledge provided for your interest. The example figures are not exact, but they should be fairly accurate. The estimates provided are for Federal taxes only. Savings on State taxes may be an additional benefit.
If you buy a home for $649,000 with a total mortgage amount of $449,000, then the interest you pay the first year is $17,312 and the property tax you pay is $8,113. Your additional write-off will be $25,425.
With a tax status of Married, no dependents, and a monthly taxable income of $14,671, your standard withholding could be $1,000/month. With these amounts you might get a small refund.
However, if you own a home and you have an extra tax write-off of $25,425, you should see a tax savings of $4,123 a year. Your Federal tax benefit could be $4,123 higher. You can wait until the end of the year to get this refund, or you can adjust your withholding to improve your monthly cash flow. Your Federal tax saving per month is $344.
If you subtract this monthly tax saving from the total house payment of $2,937 (including taxes, insurance, and so forth). Your net housing cost would be $2,594/month.
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Don’t forget: neither Zephyr Real estate nor I provide tax advice. If you decide to buy a home, check all the details out with your tax professional. The information displayed above is based on IRS guidelines for 2011, but Zephyr and I disclaim any responsibility for its accuracy.