Our homeownership tax benefits guide includes a more detailed calculator which enables users to input more data to get a more precise calculation & has been updated for the new 2018 tax law.
|Amount Financed :||$250,000.00|
|Monthly Principal & Interests :||$1,342.05|
|Monthly Real Estate Taxes :||$250.00|
|Monthly Insurance :||$125.00|
|Loan To Value Ratio :||83.33%|
|Months With PMI :||31|
|Monthly PMI :||$104.17|
|Total Monthly Payments :||$1,821.22|
|Average Annual Income Tax Deduction :||$10,113.70|
|Average Annual Tax Savings :||$2,932.97|
|Savings Over First 5 Years||Savings Over 30 Years|
|Interests and Points :||$35,568.50||$235,639.46|
|Total Property Taxes :||$15,000.00||$90,000.00|
|Total Deductions :||$50,568.50||$325,639.46|
|Cumulative Tax Savings :||$14,664.87||$94,435.44|
|Average Payment After Taxes :||$1,576.81||$1,558.90|
In 2018 the standard deduction for individuals will be $12,000 & the standard deduction for married couples will be $24,000. This means for there to be tax savings from your mortgage interest payments you will need the above to combine with other deductions (like charitable giving or state, local & property taxes) to exceed these limits. Further, the combined limit on deducting property taxes with state income or sales tax will be set to $10,000 per year.
When determining your tax benefits, you need to gather together quite a bit of information. Among the pieces of information you will need are:
After plugging in all of this information, you can determine the tax benefit of your home, which will help you determine the amount you are really paying for your mortgage each month.
If your home has a value of $300000.00, for example, and you take out a loan for $250000.00, your total monthly payment may come out to $1,821.22 (after considering all of the other factors described above). Due to the savings you will receive from your tax benefit, however, your average payment will be $1,576.81 during the first 5 years. If you'll decide to live in your home after this period, you will only pay $1,558.90 per month in average.
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Owning a home can be expensive. In addition to paying down your principle, you have to pay thousands in dollars in loan interest every year and thousands in property taxes, homeowner’s insurance, private mortgage insurance and perhaps homeowner’s association fees. That’s not even taking into account any repairs or improvements you might need to make from year to year, such as putting on a new roof or buying a new air conditioner.
One of the financial benefits of home ownership is that you can deduct the interest you pay on your loan up to a total of $750,000 of mortgage debt, which can provide some financial relief when it seems like your home is only costing you money.
What you can deduct depends on your particular financial circumstances. However, in general, you can deduct any mortgage interest that you pay (on up to $750,000 of debt), any points you had to pay to get your mortgage or to pre-pay interest, and any property taxes you pay. In the past homeowners were able to deduct interest paid on up to $100,000 of home equity loan debt, but the 2018 tax law no longer allows the deduction of interest paid on HELOCs and home equity debt.
Tax deductions are not the same as credits. At the end of the year, you deduct the interest from your taxable income, reducing your overall tax burden. Therefore, if your taxable income is $50,000 and you paid $5,000 in mortgage interest, your taxable income would be reduced to $45,000. Your taxes will then be calculated based on the appropriate percentage of your income for your tax bracket.
In contrast, a tax credit would deduct $5,000 from the amount of taxes you owe or would give you $5,000 if you owed no taxes.
If you work from home for any part of the time, you can also deduct your mortgage expenses from your taxes. The deduction has complicated rules, but essentially, you must deduct the proportion of your mortgage that is equal to the proportion of the space you use for your work. Therefore, if 1/5 of your home is dedicated to an office space, you can deduct 1/5 the cost of your mortgage from your taxes.
You can also deduct other expenses in the same proportion, including your utility charges, such as your electricity, water and Internet.
Because this deduction has many complex rules, it is important that you work with a certified tax professional to determine exactly what it is permissible for you to claim. Working with a tax professional is also advisable when you are making other mortgage deductions, such as your interest or property taxes. An accountant can help you ensure that you are taking the full deduction for which you qualify so that you can maximize your tax benefits.
If your house appreciates throughout the duration of ownership you are allowed to obtain some capital gains tax-free. Individual homeowners have a cap of $250,000 while married couples have a cap of $500,000. There are a couple other requirements including not having used this provision in the last 2 years and the house serving as your primary residence for at least 2 of the past 5 years.
Though a tax professional can give you a precise picture of what you can expect to save with your mortgage deductions, you can also use the mortgage tax benefit calculator provided here to learn what benefits you may expect to receive at the end of the year. The calculator can give you an idea of your expected tax savings for each individual year and for the total time you plan to stay in your home. Just plug in the amount of the loan, your current home value, the interest rate, the length of the loan, any points or closing costs, and your annual taxes, insurance and PMI. Then plug in your state and federal tax rate and your standard deductions. We’ll e-mail you a complete financial analysis of what you can save in the coming years based on the interest you pay.