ChodTheWacko

Hi All,

I wrote this up for some friends, thought I'd share it, since it came up in two other threads.


Here's a very rough formula to figure out how much a mortgage will cost you, after you include the tax break. It will need tweaking but it'll get you in the right ballpark.

This assumes that before the mortgage, you used the standard deduction on your tax form, and after the mortgage, you itemize your deductions.


Assume fees are roughly as follows, all paid monthly except otherwise

$200 - property tax
$210 - condo fee
$190 - state income tax
mortgage: Assume $600 mortgage; $250 principal/$350 interest (initially)
Assume you are in the 28% tax bracket.

Assuming nothing else 'interesting', your basic federal itemized deduction is:
mortgage interest + property tax + state income tax

In the above scenario, the actual monthly payment is roughly:
$200 + $210 + $600 - (($350 + $200 + $190 - 395) * .28) = $913 / month

Why subtract 395? because you are now Itemizing. Standard deduction on the tax form for a single is $4750, or roughly $395/month. If your itemized deduction is $395 a month, you won't bother itemizing - that's what you get back already. So you don't really 'save' anything as far as taxes go. If your itemized deduction is $495 a month, you really only get back $100 * .28 in terms of the 'extra tax break'.

Hope that makes sense! :P

CrockPot

unfortunately, your scenario works only for a small minority. too many other factors that would come into play. i take it this is based on your current mortgage situation?

CrockPot

http://www.dinkytown.com/java/mortgagetaxes.html

good site to figure out how much one could save in income taxes from their mortgage.

NSXNEXT

iTrader: (2)

Wish they had something like that for interest only mortgages. Although that makes it easier since you're only paying interest....all deductible.

GreenMonster

What people who rent instead of own usually forget is the tax savings. They only look at the small picture, sometimes looking at the equity you're building because of rising housing costs, but forget the tax implacations.

Eggplant-EX

So many factors invloved.

But you forgot, most property go up in equity.... Also, if we are rough calculating, I usually get back 1 month in mortgage payment from taxes. That and tax sheletring my income is invaluable.