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So lets say I'm gonna buy a 500k house with 20% down and a 4% rate. I'm married so my standard deduction is what 12k? something like that.
Now when I use online calculators it says my tax savings on the 1st year would be $6160 but I just don't see how is that possible. If I'm paying off a 400k loan total interest paid during the first year should be about 15k. That's only 3k more than standard deduction. Right? So mine and my wifes taxable income would only be lowered by 3k (compared to the standard deduction we couldve claimed). So in the end the whole thing would net me 25% (tax rate) times 3k. that's ONLY about $750.
Please tell me if I'm calculating this wrong. I totally might be.
I don't know the assumptions your online calculator made. Your interest will be deductible. Additionally, any other deductions you are entitled to take, such as property taxes, state income taxes, charitable contributions, etc. will also be deductible. You did not take those deductions when you used the standard deduction.
So lets say I'm gonna buy a 500k house with 20% down and a 4% rate. I'm married so my standard deduction is what 12k? something like that.
Now when I use online calculators it says my tax savings on the 1st year would be $6160 but I just don't see how is that possible. If I'm paying off a 400k loan total interest paid during the first year should be about 15k. That's only 3k more than standard deduction. Right? So mine and my wifes taxable income would only be lowered by 3k (compared to the standard deduction we couldve claimed). So in the end the whole thing would net me 25% (tax rate) times 3k. that's ONLY about $750.
Please tell me if I'm calculating this wrong. I totally might be.
I'm certainly not going to take the time to do the math, but remember your simply taking the 16k off your income as a deduction. Its not a tax credit. Its certainly possible that works out to $750 for your particular situation. Everyone's situation, income, deductions, etc is different.
Hard to say how it calculated to get $6160. Most calculators don't take into account the difference between the standard and itemized deductions. To accurately calculate your savings, you would need to know how close you are to itemizing before the house. For example do you live in a state with state income taxes or deductible sales tax? Did you include you property taxes when you calculated?
For example, if you have $10,000 withheld for state income taxes, then you're only $2,600 from itemizing. So the interest, property tax, and other deductions savings kick in from itemizing after the $2,600.
So lets say I'm gonna buy a 500k house with 20% down and a 4% rate. I'm married so my standard deduction is what 12k? something like that.
Now when I use online calculators it says my tax savings on the 1st year would be $6160 but I just don't see how is that possible. If I'm paying off a 400k loan total interest paid during the first year should be about 15k. That's only 3k more than standard deduction. Right? So mine and my wifes taxable income would only be lowered by 3k (compared to the standard deduction we couldve claimed). So in the end the whole thing would net me 25% (tax rate) times 3k. that's ONLY about $750.
Please tell me if I'm calculating this wrong. I totally might be.
That looks about right. If you have state income tax, you can deduct that too. Bad news is that your deduction will go down each year as you pay less interest and more principal.
I'm certainly not going to take the time to do the math, but remember your simply taking the 16k off your income as a deduction. Its not a tax credit. Its certainly possible that works out to $750 for your particular situation. Everyone's situation, income, deductions, etc is different.
Again, its a deduction, not a tax credit.
OP did not say it was a credit. He calculated the difference between his itemized deductions (15k) and his standard deduction (12k) and multiplied by his marginal tax rate. His math is correct.
He neglected to add property taxes as well as any other itemized deductions to his 15k of mortgage interest. The MFJ standard deduction is more than 12k. So that part is off. But his math is just fine.
So lets say I'm gonna buy a 500k house with 20% down and a 4% rate. I'm married so my standard deduction is what 12k? something like that.
Now when I use online calculators it says my tax savings on the 1st year would be $6160 but I just don't see how is that possible. If I'm paying off a 400k loan total interest paid during the first year should be about 15k. That's only 3k more than standard deduction. Right? So mine and my wifes taxable income would only be lowered by 3k (compared to the standard deduction we couldve claimed). So in the end the whole thing would net me 25% (tax rate) times 3k. that's ONLY about $750.
Please tell me if I'm calculating this wrong. I totally might be.
Your state and local income taxes - as well as property taxes - are also deductible - probably at least several thousand dollars more right there. You might also have a few other assorted deductions for things like child care or personal property taxes (if your car registration fees are based on VALUE they are deductible, but not if they are based on WEIGHT). If you live in a state without an income tax, your SALES taxes are deductible.
MFS rarely helps - maybe if one spouse has 90% of the income and the other spouse has 10% of the income.
But MFS rarely is better than MFJ.
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