Understanding Tax Advantages of Owning a Home
You often hear about tax advantages of owning a home but many people don’t really understand what this means. The following will explain how you can save money on taxes by owning a home and filing a tax deduction.
What is a Tax Deduction?
A tax deduction is an amount of money subtracted from your income. Your taxable income becomes the new lower amount.
What Can I Use as a Tax Deduction When I Own a Home?
When you own a home you can deduct the Property Taxes and the Mortgage Interest you paid that year.
You buy $150,000 home with an interest rate of 6% and your loan payment is $900 per month.
The interest on a new loan is almost equal to the full payment so for this example I will use $900.
$900 x 12 months = $10,800 (This is your 1st deduction)
The taxes on the property are $225 per month x 12 months = $2,700 (This is your 2nd deduction)
$10,800 + $2,700 = $13,500 (This is your total deduction)
$13,500 is the amount of money you can subtract from your income and you do not have to pay taxes on it. If you are in a 28% tax bracket ($13,500 x 28% = $3,780)
You get $3,780 Tax Refund just for Owning a Home.
This is why many people say owning a home is cheaper than renting
In the example above if you take $3,780 / 12 = $315 per month. Subtract this from your house payment and that would be an amount compared to renting.
If your house payment is $1,255 for a $150,000 home and you subtract $315 per month then you are really paying $940 per month for the house.
CLOSING COSTS DEDUCTION
When you first purchase your home there will be some closing costs added to the price. Some of these can also be deducted that year when you do your taxes. It is always a good idea to contact a tax consultant when calculating these cost.
We hope this helps give you some idea of the tax advantages to owning a home. If you are in the market to buy a home please contact our expert staff. We look forward to helping you reach your goals and will do it in a warm and friendly way. You are never under any pressure to buy with our team.
Scott Marvin 614-581-9497
Kevin Woodard 614-425-2879
Disclaimer – The calculations above are designed to be an example and are not to be used for your personal taxes. Please consult a certified accountant or tax person when doing your taxes. As a real estate agent I am not allowed to give tax advice.