I have a question about the perceived tax “savings” of the mortgage interest deduction. I am married (no kids) and filed the 1040EZ last year. I am not currently itemizing deductions as I am a renter and have no taxable investment earnings. I don’t think I can come up with more deductions than the standard deduction as I consider my living expenses relatively low and nonqualifying.
The standard deduction was $16,900 per year last year for married couples. Now if I were to begin itemizing my deductions after buying a house I would have to come up with $16,900 before I started saving any money. I intend to buy a property in a few years under 200K. Here is a conservative calculation I did:
My interest payments the first year at current rates (7.0 for 200K loan) would be $13,935.65. I still would need to have $3K more in deductions before I started seeing any benefit. I just don’t think that my case would yield significant mortgage interest tax “savings”.
I don’t assume any tax benefit when calculating the rent vs buy numbers. The principal payments only add up to $2031 the first year. It would take a number of years for the principal payments to start making a significant monthly difference. At the end of year 3 it would finally get to $200/mo (36th payment) which is only $110 more than the first payment. (It would take 13 years to reach $400 per month in principal).
Can any one point out what I am not understanding? I am a tax novice so I could be missing something completely. How would the mortgage interest payments be a tax advantage for someone like me?
