This is a great explanation by Keith Renno of Wintrust Mortgage about how owning a home works as a tax benefit. Follow along here as you listen. (NOTE: This is NOT tax advice, only an example of how this works.) Let’s suppose that your monthly mortgage is $2,500 a month. You are probably paying approximately: $400-$500 Taxes $2,000 Principal & Interest $60 Insurance Most of what you pay on your home for the first 10 years is interest which you can use as a tax deduction. In this scenario, you would likely be able to write off about $1,500. You can also write off your taxes, an additional $500, for a total deduction on $2,000. (You may be able to write off insurance, depending on your situation, but, for this example, that will not be included.) Let’s suppose that your tax bracket is 30%. On $2,000 in deductions per month, your tax benefit would be $600 per month or $7,200 per year. If you are paying $2,600 per month on your mortgage and you deduct the tax benefit of $600 per month, you are actually paying just $2,000 per month on your mortgage. Of course, you have to pay your mortgage each month before you get the tax benefit. However, if you are a W-2 employee, you can increase your withholdings on the W-9 form with your employer. That will put more money in your pocket each month helping you pay the higher mortgage. You may still have a slightly higher monthly payment than you did when renting, but the increased withholding can help. Taking this into account is important because you may be able to get into a nicer home without adding significantly to the monthly payment you had when you were renting! TALK WITH YOUR ACCOUNTANT ABOUT THIS!
Posted on: Fri, 15 Aug 2014 21:20:25 +0000
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