Everyone talks about the tax benefits of owning a home. How does that really translate?

Take a look at the following breakdown:

Purchase Price	$650,000
Minus Down Payment	65,000
(10% down)
Equals Loan Amount	585,000
Multiplied by Interest Rate (Factor) = Interest	0.00510
	Interest: 6.125%
Total Interest	$2,986
Multiplied by 12 (Payments in a Year)	35,831
Property Taxes (Purchase Price x 1.25)	8,125
Personal Residence Write-Off:
Interest	$35,831
Property Taxes	8,125
Equals Total Personal Residence Write-Off	$43,956
Clients Combined Income	120,000
Taxes (Income x 35 is Max. Federal Income Tax Bracket)	33,600
28%
(Note: CA State Income Taxes Apply, 9.3 max)
Federal Income Taxes With Personal Residence Write-Off
Clients Combined Income	$120,000
Less Personal Residence Write-off	43,956
Taxable Income	$76,044
Taxes (Income x 35 is Max. Federal Income Tax Bracket)	21,292
28%
(Note: CA State Income Taxes Apply, 9.3 max)
Tax Savings With Purchase
Original Federal Income Taxes	$33,600
Less Federal Income Tax After Write-Off	21,292
Federal Income Tax Savings	$12,308
Monthly Tax Savings	$1,026
Difference per Month Between Home Ownership & Renting
Interest Monthly	$2,986
Add Property Taxes @ 1.25% of Purchase Price per Month	677.08
HOA Fees (Condominium)	0
Total ITI	$3,663
Less Monthly Tax Savings	$1,026
Total	$2,637
Less Current Rent	2300
Difference per Month Between Home Ownership & Renting	$337

Given the scenario of a home purchase of $650,000 with 10% down (which, by the way, is the minimum almost everywhere at the moment), leaving a loan of $585,000, this shows that this person, who currently pays $2,300/mo in rent, would have a monthly mortgage of $3663.

Here, the monthly outflow increases substantially, and you have to be able to afford that monthly to reap the benefits.

And here is where you’ll see the benefit…

In this scenario, this person would be able to reduce his taxable income from $120,000, where s/he would pay $33,600 in income tax, to $76,044 thereby reducing his income tax to $21,292, for a savings of $12,308. Divide that over the year, and s/he saves $1,026/month on average. With a $2,300/mo rent, adding this savings, theoretically, this person could afford $3,326/mo and own his/her home, benefiting also from the appreciation which has averaged 8% over the last 20+ years.

Request a copy of this form where you can plug in your own numbers by calling 650.515.5950.

Please consult your tax advisor on an accurate assessment of your specific situation, or contact Paul W. Bartke, Enrolled Agent and CPA at 650.773.1669, or via email at BartkePaul@comcast.net.

For mortgage questions, or to verify mortgage rates and payments, please consult your lender or mortgage broker, or contact Mike Romero of RMC Real Estate Loans at 650.401.3230, or via email at michael@rmcreloans.com.

~ by aprsuite100 on August 8, 2008.