GINge!

I think my American buddy is yanking my chain here... he's telling me that in the USA you don't pay income tax on money used for your mortgage payment? Is this ?

indoMFP

It depends, it is first time buyer or is it second time buyer with a house sold???

ChodTheWacko

Mortgate Interest is tax deductable. The principal part of your mortgate is not.

However, if you do a 30 year loan, you're practically paying ALL interest for years, so....

Dan

You do not pay income tax on the INTREST you pay.

Slimey

What he said...

http://houseandhome.msn.com/improve/guides/taxes.aspx

The deduction can be quite significant and for many folks is the major source of deduction on the tax return. Owning a home (or really paying a mortgage) is much more tax-friendly then renting.

Moneys paid to property taxes are also deductible.

From what I've heard (and I have not crossed that bridge yet, so don't really know the details) -- you can also deduct major home improvement costs on your home from the capital gains in the year that you sell it. Edit -- I found this on the IRS web site http://www.irs.gov/publications/p523/ar02.html#d0e790 but I think I'd have to be a tax attorney or accountant to understand it. This issue that I'm thinking of is listed under 'adjusted basis' as 'improvements'. Maybe someone that has gone through this stuff can explain it.

indoMFP

If you sell a house then an amount up to $250,000 is deductible (not have t how on tax return or pay tax on it) you can use this amount to pay for a new home (thus a tax free mortgage)....

Slimey

Yes -- that's in that IRS publication that I linked. I think the other issues come into play when you make more then $250K from your sale.

http://www.irs.gov/publications/p523/

indoMFP

my bad, I did not check your link....sorry...

Slimey

no problem -- I added it with the edit after the original post

bug230

juniorbean

iTrader: (5)

Just in case you weren't sure... what he said

Only the interest is tax deductable.

juniorbean

iTrader: (5)

Keep in mind that you have to be in your primary residence for at least 2 years for that to be true. If you buy and sell your primary in less then two years then the $250k gets pro-rated, so, for example, if you are only there for a year you can only get away with $125k tax free profit.

Also keep in mind that's per person, so for a couple you can get up to $500k, which is nice

GINge!

Holy shit! That is pretty significant, at least the firt 3-5 years of the mortgage where you are paying almost 50% interest.

Thanks for the clarifications.

Another reason to move to the USA.

jimcol711

50%???? lol, try 75%-90% intrest payments for the first 3-5 years. you dont get down to 50% intrest payments till at least the 10th year

GINge!

I guess it depends, my statement for the last 6 months says $3500 in principle and $3560 in interest. Close enough to 50% for me. Then again, I'm at 4.3% amortized over 15 years, that's a pretty decent rate.

indoMFP

Yeah, i forgot to mention that.... I did not think to get to detailed....

but it really depend on the length of the loan that you have, a 30 year mortgage you can spend up to 10 years paying the majority on interest.....

jimcol711

i have a 5 year arm at 4.25%. so far my payments have been at least 85% intrest. (i am there a year exactly) so the first year, ive paid down about 1,500 bucks in principle, even with that low rate.

GINge!

But what is the total term of your mortgage? Sounds like 25 years?

85% Interest.... jeebus, I'd love to be able to deduct that from the income tax.

BTW, mortgage, latin for "death pledge" ...

kumar6

interest and closing costs came back to me when i bought my place...

was a very nice return...

as was said earlier... the early payments are all interest... so you will get some of that back as a tax return...


kumar

jimcol711

its a 30 year. however i dont plan on sticking around here more than another year or 2. its just a small first home. hopefully i can walk out of here with 20k or so and put that down on a bigger/nicer place in a coupe years. but yeah, in any case, the income tax break this year should be VERY nice! and as someone else jsut mentioned, closing costs (which in my case was around 2500) is also deductable.

ChodTheWacko

You can check the numbers on an amortization calculator, like say:
https://www.eloan.com/s/amortcalc

punch in 4.3%, 15 years: you're at principal > interest at day 1.