How many exemptions should I claim on my W-4? I am buying my first home and think that I need to change mine..

Question

I am buying a home, I am single, I have one job, & I am in the 25%tax bracket.

Answer 1

Are you going to have a mortgage or paying cash? How much will the mortgage be? Buying it now, or already bought it? Probably it won't be worth it to change your W-4 for this year, since most of the year is already gone by. But for next year you could possibly increase your exemptions by 1 on the W-4. I have attached a link to a paycheck calculator website, www.paycheckcity.com, though to help you determine what you should be claiming on the W-4.

Answer 2

I doubt that it will make much of a difference this year. Therefore, unless you have enough other deductions to itemize, don't change your W-4.

However, for 2008, you should be able to claim 1 exemption for every $3500 (or whatever the amount for personal exemptions gets adjusted to) in planned deductions. This does not include any pre-tax deductions like 401(k), flexible spending accounts, or health insurance.

When you purchase your home, review the HUD-1 statement to find out what your property taxes will be. Or, have someone at your closing point that number out for you. Also, get a copy of the amortization schedule for your loan to determine how much interest that you will pay in 2008. Add in your estimated state income taxes and any other itemized deductions that you plan on having in 2008 as well. Whatever this comes out to be, add $3500 for your personal exemption. Then divide that number by $3500. What ever the result is, you can claim that as the amount of exemptions for your W-4.

Below is an example.

Mortgage interest for 2008 is $8000.
Property taxes paid in 2008 is $2800.
State income tax paid in 2008 is $1300.
Personal exemption for 2008 is $3500.

Total deductions are $15600.
Divide $15600 by $3500 = 4.5.

Based upon this example, if you claim 4 exemptions, then you should receive a small refund. If you claim 5 exemptions, then you should owe a small amount.

Answer 3

Add up the mortgage interest for the year plus real estate taxes. And for the first year of ownership, remember to include only amounts that you will actually pay that year - it's probably less than a full year will be. Add in any other itemized deductions that you expect to have. Then subtract $5350. Divide that answer by $3400. That's how many extra allowances you could probably claim on your W-4 due to itemizing.

Steve's answer is close, but he forgot to subtract the standard deduction, which you DON'T get if you itemize.