One of the many reasons to buy a home includes potential tax benefits. Here’s how much you could save if you bought a home.
Today I’m joined again by Greg Cash of Greg Cash Tax Plus to answer the question, “How much of an impact can the mortgage interest deduction really make on your monthly payment and how much will you come home with every month?”
First, what’s the main difference between a renter and a homeowner? When you’re renting, all your money is benefiting the landlord and you’re not getting anything in return. You’re probably paying as much for rent as you would for a house payment, so it might not be a bad idea to think about becoming a homeowner and converting that rent payment into a house payment.
Let’s say a person was going to buy a $500,000 house. For added context, let’s say this person was single and earning $100,000 a year at their job, which would put them in the 25% to 28% tax bracket. In buying this house, they’re going to put down 20%, or $100,000. At a 4.5% interest rate for a 30-year loan, their monthly payment would equate to roughly $2,000 a month. The interest they would pay in the first year would be almost $18,000, or close to $1,500 a month.
Buying a home opens up a whole new world of tax deductions and benefits.
If you’re in this specific tax bracket, how much could you potentially reduce your taxes if you bought a home? Depending on where you’re at with your holdings, you could save $5,000 to $10,000 in the tax liability itself as a result of the mortgage interest and all the other deductions you’re now able to take. Lowering your taxes by $10,000 over the course of the year equates to about $800 a month. That reduces your $ 2,000-a-month payment down to $1,200 a month.
There’s a whole world that opens up as far as deductions when you buy a home. Because you’re responsible for your own property taxes, those can be deducted. If you previously had to do the standard deduction amount on your tax returns, you can now include any charitable donations, any possible medical expenses if you’re not covered by insurance, and your vehicle license expense.
You may have heard a few radio commercials lately explaining how you can write off hero loans and pace loans. According to Greg, despite the fact that these loans are wrapped into your property taxes, they are not deductible. Don’t believe the hype.
A special thanks to Greg for joining us once again today. If you need any more information about this topic from him, you can email him at [email protected] or give him a call at (562) 597-4300. If he’s not available, you can call his assistant Matt Coulombe at (562) 597-4600.
If you have any other real estate-related questions, feel free to give me a call or shoot me an email. I’d be happy to help!