How to Calculate the Tax Savings of Owning a Home?

Answer 1

Take the interest accumulated on your mortgage payments and add the property taxes paid, plus interest from any points on the loan and you have your deduction.

Answer 2

The other responders are correct that you can deduct your interest and real estate taxes as itemized deductions. What they don't mention though, is that if you didn't have these deductions, you'd get a standard deduction which for 2006 is $5150 if you're single, $10,300 if you're married filing jointly. So to really calculate the tax savings of owning the home, you'd have to add up all your itemized deductions including the ones for the house, then subtract the standard deduction. The difference is your additional deduction - your savings is that multiplied by your tax bracket - for most people, 15% or 25%.

Answer 3

In the first few years of a mortgage, almost all of your payment goes toward interest rather than principal. This is especially true if you have a 30-year rather than 15-year. To estimate your tax savings, multiply the amount of the mortgage (typically this is 80% of the purchase price) by the interest rate (remember, 5%=0.05) by your total tax bracket (e.g., if you are in the 20% federal income tax bracket and 7% in your state's income tax bracket, multiply by 0.27, that is, 0.20 + 0.07).

Suppose you borrow $200,000 to by a $250,000 house. You get a mortgage at 6% interest. Your marginal tax bracket is 20% for federal and 5% for state. The amount you save annually on your taxes is:

$200,000 X 0.06 X 0.25 = $3000.

The amount you save each year will gradually decrease as your principal gets paid off. Once you have your house almost paid off, you are paying very little mortgage interest. It's nice to have a home almost paid for, but the downside is that you have very little tax benefit at that point.

It's also true that you can deduct the amount you pay in points for the tax year that you buy or refinance your house. Suppose you borrow $200,000 for your house, pay 1% point, and are in a 25% (state and federal) tax bracket. Multiply that out, and you'll find that you are saving an additional $500 in tax payments.

You also get to deduct property taxes off your federal and state income taxes, which is another benefit. Then again, property tax is something you don't pay at all if you don't own your house. It's pretty typical to pay about 1% of your home's value in property taxes, depending on how high the property tax rates are where you live.

Answer 4

There are two factors that u should look
1. interest u pay. currently interest paid on loan upto 150000 is allowed as deduction per year on purchase of new flat. Therefor ur tax saving per year will be 45000Rs. (150000* 30 %(tax rate)). compute ur interest outgo and multiply it by 30 %.

2. stamp duty paid for purchase of flat is allowed as deduction upto 1 lakh Rs. U/s 80c. therefore u save in first year 30000Rs. (100000*30%).

i assumed that ur income is more than 250000 RS.

Answer 5

Read detailed guidelines on http://www.q4tax.blogspot.com