Confused on the calculation of total savings? (property tax, credit, upfront)

[ilikeallofu]

Can you please tell me which conclusion is correct based on the following assumption:

Assumption:
If I BUY a house, I end up getting $7,500 back on my tax return
AND
If I DON'T BUY a house, I end up paying $6,500 to Uncle Sam.

Conclusion:
If I buy a house, then am I in actuality saving (6,500+7,500=14,000) $14,000 or just $7,500
OR
If I don't buy a house, then I'm actually losing $6,500 or $14,000

Thanks.

[MeInDenudinFL]

Originally Posted by ilikeallofu

Can you please tell me which conclusion is correct based on the following assumption:

Assumption:
If I BUY a house, I end up getting $7,500 back on my tax return
AND
If I DON'T BUY a house, I end up paying $6,500 to Uncle Sam.

Conclusion:
If I buy a house, then am I in actuality saving (6,500+7,500=14,000) $14,000 or just $7,500
OR
If I don't buy a house, then I'm actually losing $6,500 or $14,000

Thanks.

Your calculation is wrong. If you have to pay 6500 in taxes, what you will get, if you buy now, is 8000-6500 = 1500. So, gov. is giving you 8000 back if you have ZERO in obligation. Therefore, if you don't buy, you don't get 8000. If you buy, you get 8000. But first thing first you still have to pay your taxes like anybody else. Does that make sense?

[superfly10]

Originally Posted by MeInDenudinFL

Your calculation is wrong. If you have to pay 6500 in taxes, what you will get, if you buy now, is 8000-6500 = 1500. So, gov. is giving you 8000 back if you have ZERO in obligation. Therefore, if you don't buy, you don't get 8000. If you buy, you get 8000. But first thing first you still have to pay your taxes like anybody else. Does that make sense?

correct... though you can also write certain closing costs, such as your upfront MIP on an FHA loan, property taxes etc... so, that will also lighten your tax burden.

Of course, you have to lay out the money to start with... so you're not really "saving" anything.

Can't say not buying a house would "cost" you money... unless your mortgage and other living expenses (utilities, repairs, landscapers, etc) will be equal or less than the money you now spend on rent and living expenses. If that's the case, you will see a net savings when you calculate the tax benefit.

Point is, it's much "bigger picture" than just the size of your tax credit.

[ilikeallofu]

Sorry, I should've made this clear, but I'm not a first time home buyer, so I don't qualify for the $8k tax credit. The numbers I mentioned are strictly my tax return.

[acegolfer]

Originally Posted by ilikeallofu

Can you please tell me which conclusion is correct based on the following assumption:

Assumption:
If I BUY a house, I end up getting $7,500 back on my tax return
AND
If I DON'T BUY a house, I end up paying $6,500 to Uncle Sam.

Conclusion:
If I buy a house, then am I in actuality saving (6,500+7,500=14,000) $14,000 or just $7,500
OR
If I don't buy a house, then I'm actually losing $6,500 or $14,000

Thanks.

You will be paying $14,000 less tax. Some may consider this a saving, others may not because you are paying a lot more for mortgage interest/tax.

Wow, your mortgage interest and tax must be close to $60k to get $14k tax benefit.

[MeInDenudinFL]

Originally Posted by ilikeallofu

Sorry, I should've made this clear, but I'm not a first time home buyer, so I don't qualify for the $8k tax credit. The numbers I mentioned are strictly my tax return.

OK, if that is the case, you will pay 14K less in tax as acegolfer said above but the saving and losing part is tricky to analyze.

Given that you have huge amount of money to move arround, you would be better off if you sit down and analyze all your options with a professional. That 14K swing has a lot of detail in it from finacial point of view.

[ilikeallofu]

Thanks for the suggestion and the answer... the reason behind my question wasn't to see if I would save, but if that tax savings will help me adjust my total cost of ownership of the house, which is not actually the PITI, but PITI minus Tax Adjustment... at least that's what I've been reading...

As an example, let's say I pay $4,500 a month for PITI, but if I get $800 back as of tax adjustment, then my total cost of ownership is actually $3,700... i understand that with a house you'll have additional expenses that u don't incur when in an apt, but I've put that into my adjustment as well on trying to figure out what I can comfortably pay... I plan to buy a house next year, so to see if I can really make the pymt for the house I want, I've set aside a pymt amt in a saving acct every month and will continue for another 12 months... that should give me a rough estimate on what I can afford and what kinda house I should be looking for.

Once again, thanks for all ur help and time