what do you get a better income tax refund with a child or a house?

Question

we live in new york state and my husband says owning a house will get you a better tax break.i say a child and claiming head of household will give more of a tax break.we both make together around 150k a yr.the house we would buy would be around 300k with 20% down.now before i get any anger answers we do not plan on having a child just for tax reasons we are not planning to have any.this is just a argument my husband and i had and i think i'm right and he thinks hes wrong.

Answer 1

Married filing joint rates are better than head of household. From purely a tax standpoint, owning a house would be better. Having a child will give you a $3,300 deduction, plus a $1,000 child tax credit. However, in your situation, because of your income level, you probably won't get any of the $1,000 child tax credit (the credit begins phasing out when your AGI is above $100,000). If you own a home, your mortgage interest and property taxes will be deductible.

However, when you look at it purely from a cash flow basis, having a child would be better. Say you purchase a house for 300k with 20% down. Your mortgage may be around $1800 per month. The property taxes on a 300k home in NY would be roughly around $8000 a year. This means your payments per year would be over $29,000 a year. This also doesn't take into account costs such as water and sewer, garbage, etc. that you normally don't have to pay because your landlord pays it. Your landlord may also pay gas while you pay for electric. And what about the costs to mow your lawn, the opportunity costs for having to shovel snow, homeowner's insurance (this can be easily $1,000 or more a year), etc. So let's just round up and say that it will cost you $32,000 a year to own your home. Going back to the $29,000 for mortgage and property taxes, assume that number is your deductible amount. At the 28% bracket, that means a tax savings of $8,120 a year.

If you have health insurance from work, you would need to pay more to cover "family" rather than just "employee and spouse". Figure the difference might be $1,000 a year. Buying baby clothes, formula, and diapers, doesn't cost $23,000 a year (the after tax amounts of your house payments less the tax savings), your out of pocket costs of owning a home.

Answer 2

You can't file as head of household if you're married and living with your spouse. The tax rates filing joint are better anyway.

With your income, you would not get the full $1000 child tax credit but would probably get part of it. If you're both working, you'd probably have child care expenses, and could also get a credit for part of that, which would come to several hundred dollars. Those two credits might total about $1000. The child's exemption would probably save you close to another thousand, so figure about $2000 in tax savings for the child.

Now, the house. In the early years of the mortgate, you might have around $20K in itemized deductions due to interest and real estate taxes. That could save you as much as $5600 or so in taxes if you already itemize, less if you don't but still probably at least $3000.

So bottom line, a $300K house would be likely to give you a better tax break than one child. But this assumes that otherwise you're renting - if you were buying a less expensive house if you had a child, then the calculation would be totally different since the house would not all be tax savings.

Answer 3

You may not get any benefit from the house unless you can itemize and have huge interest and deductions. Sometimes doesn't even equal out to standard deduction. Every person's situation is different depending on how much you're making, what your tax rate is, how much interest can claim on house, how many other deductions you have. So there is no "right" answer.

Answer 4

If your home loan of 240,000 is at 6% then annual interest deduction would be 14,400 - plus real estate tax of a few thousand. Due to your high income any child tax credit is phased out so you would get nothing. The house is much better.

Answer 5

I am a mother and a home owner. You and your husband fall in about the same tax bracket that me and mine do. Contrary to belief, unless you are living in poverty, you really don't get much of a tax break for children. I know the working poor get huge refunds back, like 3k per child, but the poor dears only make less than 20k per year.

Answer 6

Do not have a kid, it will ruin your life. Not worth the little tax break you will get.

Owning a home is good but not GREAT. The benefit is that the interest you pay on your mortgage is tax deduct able, meaning you take that amount off your income before they figure out how much tax you owe.

Answer 7

btw I know for the child tax credit you can get up to 3500 if you file as HOH, but you dont have to make less than 20 my friend makes about 24g

Answer 8

I have kids and a house and the kids are definitely a bigger tax break.

Answer 9

"NEVER let the TAX TAIL wag the INCOME DOG."

The WealthBuilder
Tax Advisor for Life