For example let’s say your family income is $80,000 and you pay $1500 in rent. If you buy a home for $350,000 with 20% down, your payment would be approx. $2000 a month, .
The $2000 comes from a home loan at 5%, real estate taxes, homeowner fees, and insurance.
I know $2000 per month is more than $1500, but wait! $1520 of that is a tax deduction, meaning in the first full year of homeownership, you would pay taxes on an income of $61,760 instead of $80,000. Since you are in the 28% tax bracket and 9% state, you would save $6748 a year in taxes, or $562 a month!
(Disclaimer! I’m not a CPA, so I’m not qualified to give tax advice. The numbers I used assume you are already itemizing deductions on Schedule A. Consult your tax professional to see how the numbers work out on your specific tax return.)
So let’s recap. Your rent was $1500, and now your mortgage payment is $2000, but Uncle Sam is giving you $562 of it! So your new cost to have that roof over your head is really $1438, less than you were paying in rent.
But it’s actually better than that, because remember that $300 a month I talked about back at the beginning of this article? That’s the part of the loan that goes towards paying it back, called “principle reduction”. I didn’t figure that into the calculation either, but that’s like putting that money every month right into the bank, the bank of your own home. So now we figure that owning your own home actually saves you $300 a month over renting.
But you say, “getting money back from Uncle Sam is great, but how can I possibly make the $2000 payment with my current take home pay?” Well, you don’t have to, you can take the extra money out of your check now, and let Uncle Sam tax what’s left, remember? You do this by telling your employer to take less taxes out of your check using a W-4 form. This way, you get the extra $500 a month now to make the mortgage payment with, rather than getting a big tax refund at the end of the year
Compliments of Anna Marie Barnard – Sand and Sea Realty, Inc.
619-840-move (6683) www.sandandsearealty.com