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I keep hearing that I’ll pay less taxes if I own vs. rent. Is this real? How does it work?

Posted on Tuesday, August 7th, 2007 at 11:02 pm.

This is an important FAQ! Most first-time home buyers don't understand how powerful the tax deductions can be from owning vs. renting. We'll try to clarify that here.

The very first thing you should do is read this article that explains the differences between buying & renting.

Now that you have the basics, here's the important thing to remember (quoted from the article above):

I'm hesitant to formulate a "rule of thumb" as a tool to help folks determine their deductions. There are too many variables that can greatly change the amount of mortgage interest you pay in a given year. However, perhaps it's safe to say that you can take 20 percent off your mortgage payment to get a rough idea of the tax benefits.

Using the 20% discount as a guide, if you have a $2,000/month payment, you can reasonably assume that the after-tax payment will be more like $1,600.

Here's another way to look at it: Your payment will still be $2,000/month but your take-home pay will go up by $400/month because you'll be paying less in taxes.

If you want to better understand how all this works, submit an inquiry at right and we'll review your specific situation with one of our trusted loan officers.

And please remember, this FAQ is not intended to be tax advice! Please consult a tax professional to discuss your specific situation.

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This entry was posted on Tuesday, August 7th, 2007 at 11:02 pm and was filed under All the questions you were afraid to ask, Tax Questions, The Buying Process, drodio.com. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “I keep hearing that I’ll pay less taxes if I own vs. rent. Is this real? How does it work?”

  1. Richa Badami Says:
    August 18th, 2007 at 11:34 am

    Here’s a related topic:

    You may not be aware of the 1997 changes to the capital gains tax code and how those changes may affect you when you sell your home. In general, a married couple who has owned and occupied their home for at least two of the past five years, can earn up to $500,000 on the sale of the home and pay no federal income tax whatsoever. A single person can earn up to $250,000 completely tax free! If you have additional questions regarding this, please call me I would be happy to recommend a tax professional to you.
    Richa Badami, CMPS Creating Wealth with Mortgage Planning.
    Certified Mortgage Planner
    The Badami Empower Mortgage Group
    703-928-3030 Mobile
    703-779-7042 Direct Office
    866-409-3141 e-Fax

    www.RichaBadami.com

  2. Richa Badami Says:
    August 18th, 2007 at 11:43 am

    As you probably know, home loan interest is generally fully tax deductible. For example, being in the 28% federal tax bracket has the effect of lowering your borrowing costs by almost a third. In the early years of a loan, much of the monthly payment is interest, so these savings can really add up. Tax savings are real dollars, so dont forget to take this benefit into consideration as you make decisions regarding your mortgage financing.
    Richa Badami, CMPS Creating Wealth with Mortgage Planning.
    Certified Mortgage Planner
    The Badami Empower Mortgage Group
    703-928-3030 Mobile
    703-779-7042 Direct Office
    866-409-3141 e-Fax

    www.RichaBadami.com


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