How can I calculate the savings (tax break) from buying real estate?

Question

I am told that the interest payments plus the real estate taxes are itemized on Schedule A and deducted from my income.

Are there any calculation tables or programs out there which can figure out my tax bracket and savings?

I would like to figure out how much mortgage and taxes I can afford and I would think that the amount of tax savings should be a major factor. people tell me how the tax breaks are great, but I would want to calculate exactly what my savings would be just I I would calculate my monthly mortgage payment and property taxes. It seems to me people don't seem to really calculate this before taking the plunge.

Answer 1

I don't know what you mean by savings. The mortgage interest and property taxes are deducted on schedule A as you already know. That helps to reduce the amount of tax you owe at the end of the year. (if you would have owed any). I guess what you are asking is how much each paycheck will you save in federal income tax??

To figure that out you have to know how much interest per year your mortgage will be and how much property tax your house will be charged.

After you know those answers you can divide the total by the number of paychecks you receive a year and then have your employer reduce your federal witholding by that amount.

Answer 2

You can do a search on the internet. At various mortgage sites, there will be online calculators that can figure out how much you can save by buying versus renting.

Actually, you should do the calculation before taking the plunge to buy a house. Because with mortgage interest and property taxes becoming deductions, most likely it will be high enough where you can itemize instead of claiming the standard deduction. Since your tax liability will go down, you can reduce your withholding, thereby increasing your takehome pay. This will allow you to afford a higher mortgage payment than rent payment.

For example, when I purchased my home, I did the calculation and was able to reduce my withholding substantially (property taxes in NY is high and the mortgage is pretty large), so I was able to increase my take home pay by over $1,000 a month.

Answer 3

The actual break is based upon how much your itemized deductions exceed your standard deduction. If your total itemized deductions don't exceed your standard deduction, you get ZERO benefit from home ownership until you sell.

While that's not likely in high-cost areas it is completely possible in low-cost areas of the country such as many small cities and towns in the Midwest. For example, you can still buy a decent home in Joplin, MO for under $100,000. At current mortgage rates a married couple filing a joint return wouldn't pay enough in mortgage interest and property taxes to itemize deductions unless they had several thousand in other itemizeable deductions.

Answer 4

When ;you figure the savings, remember that if you haven't been itemizing, it's only the amount that your itemized deductions are larger than the standard deduction that saves you any money since if you don't itemize, you get the standard deduction automatically. And then the excess gets multiplied by your bracket percent, so it's probably more like 15% or possibly 25% of the excess that's actually money in your pocket.