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My home-buying books suggest when making your monthly budget estimates, to multiply the mortgage+property tax by your federal tax bracket to estimate monthly tax savings. Is this a good way to estimate the savings?
I thought I'd also read somewhere that tax benefits decrease as income goes up, but can't find that info. Thanks for any help.
Tax "savings" are not a sound way to make financial decisions. In order for you taxes to go down, something has to go UP. In this case it's money paid to banks/mortgage companies.
If you have no interest or property taxes to deduct you qualify for the standard deduction from you gross income. I think this year it's about $10-$11,000. If your interest and taxes exceed that much then you take the actual amount on your tax form.
But, and here's why I say the idea of tax "savings" is a bad way to decide. If you pay the bank $20,000 in interest and you reduce your taxes by 25%, you've just paid ONE DOLLAR, to purchase ONE QUARTER. That's not a very wise purchase.
If you find a house you like, and can afford it, not just the payment, but everything else that goes with it; taxes, insurance, upkeep, utilities, then buy it. Don't buy it thinking you're going to save on taxes or that you're "investing" in an appreciating asset.
Thanks. We're not trying to buy a house to gain tax savings or as an investment, just trying to find the best house for us and determining what the annual costs would be. I thought we not only add up the mortgage, interest, insurance, taxes, maintenance, etc, but take into account the tax deductions as well.
Tax "savings" are not a sound way to make financial decisions. In order for you taxes to go down, something has to go UP. In this case it's money paid to banks/mortgage companies.
If you have no interest or property taxes to deduct you qualify for the standard deduction from you gross income. I think this year it's about $10-$11,000. If your interest and taxes exceed that much then you take the actual amount on your tax form.
But, and here's why I say the idea of tax "savings" is a bad way to decide. If you pay the bank $20,000 in interest and you reduce your taxes by 25%, you've just paid ONE DOLLAR, to purchase ONE QUARTER. That's not a very wise purchase.
If you find a house you like, and can afford it, not just the payment, but everything else that goes with it; taxes, insurance, upkeep, utilities, then buy it. Don't buy it thinking you're going to save on taxes or that you're "investing" in an appreciating asset.
golfgod
I think you're making the answer more complicated than the question intended....
Scenario is simple. If you currently pay $1000/Month rent, based on money you'd be getting back on your taxes by paying mortgage interest, how much more would be about "breaking even" monthly???
IOW If I'm going to get $2400 back on my tax return from owning a home then I'm basically "breaking even" if I'm paying $1200/Month on my mortgage.
That's howI read the question...
(yes I understand that homeownership carries other maintanence expenses, but this is in terms of hard monthly costs.)
Yes, that's what I was trying to ask, sorry if I didn't phrase it right. Trying to figure out the amount I'd get back or save at tax time to figure out annual costs of owning a home. I realize the tax benefit occurs the year after the interest/taxes are paid, but it helps for figuring out the projected budget. Thanks.
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