Take a look at the following breakdown:
|
Purchase Price |
$650,000 |
|
Minus Down Payment |
65,000 |
|
(10% down) |
|
|
Equals Loan Amount |
585,000 |
|
Multiplied by Interest Rate (Factor) = Interest |
0.00510 |
|
|
Interest: 6.125% |
|
Total Interest |
$2,986 |
|
Multiplied by 12 (Payments in a Year) |
35,831 |
|
Property Taxes (Purchase Price x 1.25) |
8,125 |
|
Personal Residence Write-Off: |
|
|
Interest |
$35,831 |
|
Property Taxes |
8,125 |
|
Equals Total Personal Residence Write-Off |
$43,956 |
|
Clients Combined Income |
120,000 |
|
Taxes (Income x 35 is Max. Federal Income Tax Bracket) |
33,600 |
|
28% |
|
|
(Note: CA State Income Taxes Apply, 9.3 max) |
|
|
Federal Income Taxes With Personal Residence Write-Off |
|
|
Clients Combined Income |
$120,000 |
|
Less Personal Residence Write-off |
43,956 |
|
Taxable Income |
$76,044 |
|
Taxes (Income x 35 is Max. Federal Income Tax Bracket) |
21,292 |
|
28% |
|
|
(Note: CA State Income Taxes Apply, 9.3 max) |
|
|
Tax Savings With Purchase |
|
|
Original Federal Income Taxes |
$33,600 |
|
Less Federal Income Tax After Write-Off |
21,292 |
|
Federal Income Tax Savings |
$12,308 |
|
Monthly Tax Savings |
$1,026 |
|
Difference per Month Between Home Ownership & Renting |
|
|
Interest Monthly |
$2,986 |
|
Add Property Taxes @ 1.25% of Purchase Price per Month |
677.08 |
|
HOA Fees (Condominium) |
0 |
|
Total ITI |
$3,663 |
|
Less Monthly Tax Savings |
$1,026 |
|
Total |
$2,637 |
|
Less Current Rent |
2300 |
|
Difference per Month Between Home Ownership & Renting |
$337 |
Given the scenario of a home purchase of $650,000 with 10% down (which, by the way, is the minimum almost everywhere at the moment), leaving a loan of $585,000, this shows that this person, who currently pays $2,300/mo in rent, would have a monthly mortgage of $3663.
Here, the monthly outflow increases substantially, and you have to be able to afford that monthly to reap the benefits.
And here is where you’ll see the benefit…
In this scenario, this person would be able to reduce his taxable income from $120,000, where s/he would pay $33,600 in income tax, to $76,044 thereby reducing his income tax to $21,292, for a savings of $12,308. Divide that over the year, and s/he saves $1,026/month on average. With a $2,300/mo rent, adding this savings, theoretically, this person could afford $3,326/mo and own his/her home, benefiting also from the appreciation which has averaged 8% over the last 20+ years.
Request a copy of this form where you can plug in your own numbers by calling 650.515.5950.
Please consult your tax advisor on an accurate assessment of your specific situation, or contact Paul W. Bartke, Enrolled Agent and CPA at 650.773.1669, or via email at BartkePaul@comcast.net.
For mortgage questions, or to verify mortgage rates and payments, please consult your lender or mortgage broker, or contact Mike Romero of RMC Real Estate Loans at 650.401.3230, or via email at michael@rmcreloans.com.
