Dumb question about mortgage interest deductions.

[tlefort]

This subject always makes the hair on my back stand on its end (I am a hairy fellow 🙂 )

When a relator hits me with the comment ” You will save so much on taxes because you can write off your interest on a mortage”, I have to educate them on a few facts.

As a renter one does not pay property tax. So say a 300 k home and aprox 3500 in property tax.

Say a household income of 75k, three kids and a federal tax liability of ~ 3500. If the renter buys a home he gets to write off about 20k a year in interest (depending on the size of the mortgage, interest rate etc). Which might bring his fed tax liability down to close to 0. But he has to pay property tax now, so he is back where he started at a 3,500$ tax laibility, just now it is in the form of property tax.

Also, don’t forget about the 10k standard decuction given to the renter. In this scenario there would only be an additional 10k write off.

everyone’s tax situation is different. You have to actually owe taxes before you can save on them via write offs.

I just hate relators just flippently quoteing how much money you can be saving by writing off a mortgage. Talk to a CPA first and work out the math. Buying and house (and a mortgage) is not always the tax savings it appears.

[SDEngineer]

[quote=tlefort]This subject always makes the hair on my back stand on its end (I am a hairy fellow 🙂 )

When a relator hits me with the comment ” You will save so much on taxes because you can write off your interest on a mortage”, I have to educate them on a few facts.

As a renter one does not pay property tax. So say a 300 k home and aprox 3500 in property tax.

Say a household income of 75k, three kids and a federal tax liability of ~ 3500. If the renter buys a home he gets to write off about 20k a year in interest (depending on the size of the mortgage, interest rate etc). Which might bring his fed tax liability down to close to 0. But he has to pay property tax now, so he is back where he started at a 3,500$ tax laibility, just now it is in the form of property tax.

Also, don’t forget about the 10k standard decuction given to the renter. In this scenario there would only be an additional 10k write off.

everyone’s tax situation is different. You have to actually owe taxes before you can save on them via write offs.

I just hate relators just flippently quoteing how much money you can be saving by writing off a mortgage. Talk to a CPA first and work out the math. Buying and house (and a mortgage) is not always the tax savings it appears.[/quote]

State taxes are an itemized tax deduction as well. So are property taxes (outside of Mello-Roos). In my case, prop taxes + state taxes alone will be the equivalent of the standard deduction, though for someone with the income profile you noted they might only amount to half the standard deduction, but that still adds $5000 to the net deductions for about $15K in extra deductions.

I believe both interest and prop. tax are also state deductions as well, which is another consideration.

In any case, I don’t know anyone who buys a house based on P&I alone. In most cases, the number given as a monthly payment on the mortgage disclosure forms is PITI, including both the tax component and insurance. Once you figure the tax advantages (not too difficult), you can subtract them out of the PITI number and get a good comparison of what you’re paying vs. what renting costs.

[SDEngineer]

[quote=tlefort]This subject always makes the hair on my back stand on its end (I am a hairy fellow 🙂 )

When a relator hits me with the comment ” You will save so much on taxes because you can write off your interest on a mortage”, I have to educate them on a few facts.

As a renter one does not pay property tax. So say a 300 k home and aprox 3500 in property tax.

Say a household income of 75k, three kids and a federal tax liability of ~ 3500. If the renter buys a home he gets to write off about 20k a year in interest (depending on the size of the mortgage, interest rate etc). Which might bring his fed tax liability down to close to 0. But he has to pay property tax now, so he is back where he started at a 3,500$ tax laibility, just now it is in the form of property tax.

Also, don’t forget about the 10k standard decuction given to the renter. In this scenario there would only be an additional 10k write off.

everyone’s tax situation is different. You have to actually owe taxes before you can save on them via write offs.

I just hate relators just flippently quoteing how much money you can be saving by writing off a mortgage. Talk to a CPA first and work out the math. Buying and house (and a mortgage) is not always the tax savings it appears.[/quote]

State taxes are an itemized tax deduction as well. So are property taxes (outside of Mello-Roos). In my case, prop taxes + state taxes alone will be the equivalent of the standard deduction, though for someone with the income profile you noted they might only amount to half the standard deduction, but that still adds $5000 to the net deductions for about $15K in extra deductions.

I believe both interest and prop. tax are also state deductions as well, which is another consideration.

In any case, I don’t know anyone who buys a house based on P&I alone. In most cases, the number given as a monthly payment on the mortgage disclosure forms is PITI, including both the tax component and insurance. Once you figure the tax advantages (not too difficult), you can subtract them out of the PITI number and get a good comparison of what you’re paying vs. what renting costs.

[SDEngineer]

[quote=tlefort]This subject always makes the hair on my back stand on its end (I am a hairy fellow 🙂 )

When a relator hits me with the comment ” You will save so much on taxes because you can write off your interest on a mortage”, I have to educate them on a few facts.

As a renter one does not pay property tax. So say a 300 k home and aprox 3500 in property tax.

Say a household income of 75k, three kids and a federal tax liability of ~ 3500. If the renter buys a home he gets to write off about 20k a year in interest (depending on the size of the mortgage, interest rate etc). Which might bring his fed tax liability down to close to 0. But he has to pay property tax now, so he is back where he started at a 3,500$ tax laibility, just now it is in the form of property tax.

Also, don’t forget about the 10k standard decuction given to the renter. In this scenario there would only be an additional 10k write off.

everyone’s tax situation is different. You have to actually owe taxes before you can save on them via write offs.

I just hate relators just flippently quoteing how much money you can be saving by writing off a mortgage. Talk to a CPA first and work out the math. Buying and house (and a mortgage) is not always the tax savings it appears.[/quote]

State taxes are an itemized tax deduction as well. So are property taxes (outside of Mello-Roos). In my case, prop taxes + state taxes alone will be the equivalent of the standard deduction, though for someone with the income profile you noted they might only amount to half the standard deduction, but that still adds $5000 to the net deductions for about $15K in extra deductions.

I believe both interest and prop. tax are also state deductions as well, which is another consideration.

In any case, I don’t know anyone who buys a house based on P&I alone. In most cases, the number given as a monthly payment on the mortgage disclosure forms is PITI, including both the tax component and insurance. Once you figure the tax advantages (not too difficult), you can subtract them out of the PITI number and get a good comparison of what you’re paying vs. what renting costs.

[SDEngineer]

[quote=tlefort]This subject always makes the hair on my back stand on its end (I am a hairy fellow 🙂 )

When a relator hits me with the comment ” You will save so much on taxes because you can write off your interest on a mortage”, I have to educate them on a few facts.

As a renter one does not pay property tax. So say a 300 k home and aprox 3500 in property tax.

Say a household income of 75k, three kids and a federal tax liability of ~ 3500. If the renter buys a home he gets to write off about 20k a year in interest (depending on the size of the mortgage, interest rate etc). Which might bring his fed tax liability down to close to 0. But he has to pay property tax now, so he is back where he started at a 3,500$ tax laibility, just now it is in the form of property tax.

Also, don’t forget about the 10k standard decuction given to the renter. In this scenario there would only be an additional 10k write off.

everyone’s tax situation is different. You have to actually owe taxes before you can save on them via write offs.

I just hate relators just flippently quoteing how much money you can be saving by writing off a mortgage. Talk to a CPA first and work out the math. Buying and house (and a mortgage) is not always the tax savings it appears.[/quote]

State taxes are an itemized tax deduction as well. So are property taxes (outside of Mello-Roos). In my case, prop taxes + state taxes alone will be the equivalent of the standard deduction, though for someone with the income profile you noted they might only amount to half the standard deduction, but that still adds $5000 to the net deductions for about $15K in extra deductions.

I believe both interest and prop. tax are also state deductions as well, which is another consideration.

In any case, I don’t know anyone who buys a house based on P&I alone. In most cases, the number given as a monthly payment on the mortgage disclosure forms is PITI, including both the tax component and insurance. Once you figure the tax advantages (not too difficult), you can subtract them out of the PITI number and get a good comparison of what you’re paying vs. what renting costs.

[SDEngineer]

[quote=tlefort]This subject always makes the hair on my back stand on its end (I am a hairy fellow 🙂 )

When a relator hits me with the comment ” You will save so much on taxes because you can write off your interest on a mortage”, I have to educate them on a few facts.

As a renter one does not pay property tax. So say a 300 k home and aprox 3500 in property tax.

Say a household income of 75k, three kids and a federal tax liability of ~ 3500. If the renter buys a home he gets to write off about 20k a year in interest (depending on the size of the mortgage, interest rate etc). Which might bring his fed tax liability down to close to 0. But he has to pay property tax now, so he is back where he started at a 3,500$ tax laibility, just now it is in the form of property tax.

Also, don’t forget about the 10k standard decuction given to the renter. In this scenario there would only be an additional 10k write off.

everyone’s tax situation is different. You have to actually owe taxes before you can save on them via write offs.

I just hate relators just flippently quoteing how much money you can be saving by writing off a mortgage. Talk to a CPA first and work out the math. Buying and house (and a mortgage) is not always the tax savings it appears.[/quote]

State taxes are an itemized tax deduction as well. So are property taxes (outside of Mello-Roos). In my case, prop taxes + state taxes alone will be the equivalent of the standard deduction, though for someone with the income profile you noted they might only amount to half the standard deduction, but that still adds $5000 to the net deductions for about $15K in extra deductions.

I believe both interest and prop. tax are also state deductions as well, which is another consideration.

In any case, I don’t know anyone who buys a house based on P&I alone. In most cases, the number given as a monthly payment on the mortgage disclosure forms is PITI, including both the tax component and insurance. Once you figure the tax advantages (not too difficult), you can subtract them out of the PITI number and get a good comparison of what you’re paying vs. what renting costs.

[ocrenter]

let’s just go with someone that makes $200k a year and married.

for the income up to $130k, you are taxed at 19%. but your 70k is taxed at 28%. So you pay 26.6k in income tax plus the 19.6k for total of 46.2k in fed taxes.

now let’s say you buy a house for $600k with 20% down. your monthly mortgage is $2700 and your property tax yearly is $6000. assuming 90% of that 2700/month is interest, your total yearly mortgage interest + property tax would be 35.2k.

you are now not taxed at $200k, but you are now tax’d at $164.8k. you still have to pay the $26.6k in income tax for the amount up to $130k, but you are now just on the hook for 28% of 34.8k, which works out to be $9744.

so your total tax saving (federal) is basically 10k. so in short, you get back 28% of your total mortgage interest and property tax.

so the question is, will you be able to rent the same home for the same amount? well, you need to add $2000 for insurance and generally add another $50/month for HOA, so your yearly cost of homeownership on a $600k home is $27800 after adding those and subtracting the $10k from your fed taxes.

then the question is, what can you get these days for $600k? would it be a better home than something you can rent for $2300/month? and remember, we haven’t even looked at the state tax savings with all of this.

[ocrenter]

let’s just go with someone that makes $200k a year and married.

for the income up to $130k, you are taxed at 19%. but your 70k is taxed at 28%. So you pay 26.6k in income tax plus the 19.6k for total of 46.2k in fed taxes.

now let’s say you buy a house for $600k with 20% down. your monthly mortgage is $2700 and your property tax yearly is $6000. assuming 90% of that 2700/month is interest, your total yearly mortgage interest + property tax would be 35.2k.

you are now not taxed at $200k, but you are now tax’d at $164.8k. you still have to pay the $26.6k in income tax for the amount up to $130k, but you are now just on the hook for 28% of 34.8k, which works out to be $9744.

so your total tax saving (federal) is basically 10k. so in short, you get back 28% of your total mortgage interest and property tax.

so the question is, will you be able to rent the same home for the same amount? well, you need to add $2000 for insurance and generally add another $50/month for HOA, so your yearly cost of homeownership on a $600k home is $27800 after adding those and subtracting the $10k from your fed taxes.

then the question is, what can you get these days for $600k? would it be a better home than something you can rent for $2300/month? and remember, we haven’t even looked at the state tax savings with all of this.

[ocrenter]

let’s just go with someone that makes $200k a year and married.

for the income up to $130k, you are taxed at 19%. but your 70k is taxed at 28%. So you pay 26.6k in income tax plus the 19.6k for total of 46.2k in fed taxes.

now let’s say you buy a house for $600k with 20% down. your monthly mortgage is $2700 and your property tax yearly is $6000. assuming 90% of that 2700/month is interest, your total yearly mortgage interest + property tax would be 35.2k.

you are now not taxed at $200k, but you are now tax’d at $164.8k. you still have to pay the $26.6k in income tax for the amount up to $130k, but you are now just on the hook for 28% of 34.8k, which works out to be $9744.

so your total tax saving (federal) is basically 10k. so in short, you get back 28% of your total mortgage interest and property tax.

so the question is, will you be able to rent the same home for the same amount? well, you need to add $2000 for insurance and generally add another $50/month for HOA, so your yearly cost of homeownership on a $600k home is $27800 after adding those and subtracting the $10k from your fed taxes.

then the question is, what can you get these days for $600k? would it be a better home than something you can rent for $2300/month? and remember, we haven’t even looked at the state tax savings with all of this.

[ocrenter]

let’s just go with someone that makes $200k a year and married.

for the income up to $130k, you are taxed at 19%. but your 70k is taxed at 28%. So you pay 26.6k in income tax plus the 19.6k for total of 46.2k in fed taxes.

now let’s say you buy a house for $600k with 20% down. your monthly mortgage is $2700 and your property tax yearly is $6000. assuming 90% of that 2700/month is interest, your total yearly mortgage interest + property tax would be 35.2k.

you are now not taxed at $200k, but you are now tax’d at $164.8k. you still have to pay the $26.6k in income tax for the amount up to $130k, but you are now just on the hook for 28% of 34.8k, which works out to be $9744.

so your total tax saving (federal) is basically 10k. so in short, you get back 28% of your total mortgage interest and property tax.

so the question is, will you be able to rent the same home for the same amount? well, you need to add $2000 for insurance and generally add another $50/month for HOA, so your yearly cost of homeownership on a $600k home is $27800 after adding those and subtracting the $10k from your fed taxes.

then the question is, what can you get these days for $600k? would it be a better home than something you can rent for $2300/month? and remember, we haven’t even looked at the state tax savings with all of this.

[ocrenter]

let’s just go with someone that makes $200k a year and married.

for the income up to $130k, you are taxed at 19%. but your 70k is taxed at 28%. So you pay 26.6k in income tax plus the 19.6k for total of 46.2k in fed taxes.

now let’s say you buy a house for $600k with 20% down. your monthly mortgage is $2700 and your property tax yearly is $6000. assuming 90% of that 2700/month is interest, your total yearly mortgage interest + property tax would be 35.2k.

you are now not taxed at $200k, but you are now tax’d at $164.8k. you still have to pay the $26.6k in income tax for the amount up to $130k, but you are now just on the hook for 28% of 34.8k, which works out to be $9744.

so your total tax saving (federal) is basically 10k. so in short, you get back 28% of your total mortgage interest and property tax.

so the question is, will you be able to rent the same home for the same amount? well, you need to add $2000 for insurance and generally add another $50/month for HOA, so your yearly cost of homeownership on a $600k home is $27800 after adding those and subtracting the $10k from your fed taxes.

then the question is, what can you get these days for $600k? would it be a better home than something you can rent for $2300/month? and remember, we haven’t even looked at the state tax savings with all of this.

[temeculaguy]

Those are very good examples of how to estimate the income tax deduction, I have a basic one that I use to explain it to people who get lost in the details or are new to this (as I suspect the OP is based on his misconception, not an insult just an observation).

Here goes:

Measure the principal and interest against your current rent.

That’s it!

Taxes, insurance and hoa will essentially be covered by the tax benefit. scenarios vary a little, sometimes it’s too basic, in ocrenter’s scenario given above, it’s about a 10k rebate but 7500-8000 outlay, throw in water that landlords pay and maybe some lawn care and it’s a tie.

So when evaluating a purchase and trying to determine if it is rent nuetral compared to what you already pay in rent, just go to a basic mortgage calculator that only calculates P&I and compare the two numbers, head to head.

For condos, it doesn’t always work, especially when they have really high association fees like some high rise ones do. For suburban condos it is usually a wash, they might have a 300 assoc but it includes structural fire insurance, trash, gardner, exterior water, pool, etc. so the number is a bit of a soft number. but comparing agains rent for the same condo, you may need to adjust the formula a little.

[temeculaguy]

Those are very good examples of how to estimate the income tax deduction, I have a basic one that I use to explain it to people who get lost in the details or are new to this (as I suspect the OP is based on his misconception, not an insult just an observation).

Here goes:

Measure the principal and interest against your current rent.

That’s it!

Taxes, insurance and hoa will essentially be covered by the tax benefit. scenarios vary a little, sometimes it’s too basic, in ocrenter’s scenario given above, it’s about a 10k rebate but 7500-8000 outlay, throw in water that landlords pay and maybe some lawn care and it’s a tie.

So when evaluating a purchase and trying to determine if it is rent nuetral compared to what you already pay in rent, just go to a basic mortgage calculator that only calculates P&I and compare the two numbers, head to head.

For condos, it doesn’t always work, especially when they have really high association fees like some high rise ones do. For suburban condos it is usually a wash, they might have a 300 assoc but it includes structural fire insurance, trash, gardner, exterior water, pool, etc. so the number is a bit of a soft number. but comparing agains rent for the same condo, you may need to adjust the formula a little.

[temeculaguy]

Those are very good examples of how to estimate the income tax deduction, I have a basic one that I use to explain it to people who get lost in the details or are new to this (as I suspect the OP is based on his misconception, not an insult just an observation).

Here goes:

Measure the principal and interest against your current rent.

That’s it!

Taxes, insurance and hoa will essentially be covered by the tax benefit. scenarios vary a little, sometimes it’s too basic, in ocrenter’s scenario given above, it’s about a 10k rebate but 7500-8000 outlay, throw in water that landlords pay and maybe some lawn care and it’s a tie.

So when evaluating a purchase and trying to determine if it is rent nuetral compared to what you already pay in rent, just go to a basic mortgage calculator that only calculates P&I and compare the two numbers, head to head.

For condos, it doesn’t always work, especially when they have really high association fees like some high rise ones do. For suburban condos it is usually a wash, they might have a 300 assoc but it includes structural fire insurance, trash, gardner, exterior water, pool, etc. so the number is a bit of a soft number. but comparing agains rent for the same condo, you may need to adjust the formula a little.

[temeculaguy]

Those are very good examples of how to estimate the income tax deduction, I have a basic one that I use to explain it to people who get lost in the details or are new to this (as I suspect the OP is based on his misconception, not an insult just an observation).

Here goes:

Measure the principal and interest against your current rent.

That’s it!

Taxes, insurance and hoa will essentially be covered by the tax benefit. scenarios vary a little, sometimes it’s too basic, in ocrenter’s scenario given above, it’s about a 10k rebate but 7500-8000 outlay, throw in water that landlords pay and maybe some lawn care and it’s a tie.

So when evaluating a purchase and trying to determine if it is rent nuetral compared to what you already pay in rent, just go to a basic mortgage calculator that only calculates P&I and compare the two numbers, head to head.

For condos, it doesn’t always work, especially when they have really high association fees like some high rise ones do. For suburban condos it is usually a wash, they might have a 300 assoc but it includes structural fire insurance, trash, gardner, exterior water, pool, etc. so the number is a bit of a soft number. but comparing agains rent for the same condo, you may need to adjust the formula a little.

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