Calculator to determine tax benefit of buying a home?

[Anonymous]

We're hoping to buy next spring or later, been saving for DP, etc. but wonder what we can expect from the tax benefit for itemizing housing costs (interest paid, property taxes?). Are there any calculators that can help us determine what might change from renting to buying? We don't itemize now, and from what I've read, the change could amount to a decent sum, enough for me to change our withholding, maybe free up a couple hundred dollars each month. FWIW, we have HHI of about $180k and are looking to buy in the $550-$650k range, 2 kids. Thanks for any advice!

[Anonymous]

Yes, it can be a large sum. But I doubt there could be a good calculator since the calculator would essentially require you to input your entire tax return information.

[Anonymous]

It's easy. Find out the amount of interest you'll pay in a year and times it by your annual tax rate. That's how much less in federal taxes you'll pay. You also need to add property tax to the annual interest amount

[Anonymous]

Khan Academy has an excel spreadsheet that might helpful to you. https://www.khanacademy.org/economics-finance-domain/core-finance/housing/renting-v-buying/v/renting-vs-buying-detailed-analysis

[Anonymous]

Anonymous wrote:It's easy. Find out the amount of interest you'll pay in a year and times it by your annual tax rate. That's how much less in federal taxes you'll pay. You also need to add property tax to the annual interest amount

Yep, this. To find out the amount of interest paid in a year, just look at the amoritization table for the loan.

[Anonymous]

Add up your interest, property taxes, and charitables and state income tax if you haven't itemized before and multiply by your tax rate. It's quite significant.

[Anonymous]

If you use Turbo Tax to do your returns, you can just make a new file and enter in the new information and it will calculate it for you. It will tell you if you trigger AMT, which can take away some/most of the benefit.

[Anonymous]

Anonymous wrote:If you use Turbo Tax to do your returns, you can just make a new file and enter in the new information and it will calculate it for you. It will tell you if you trigger AMT, which can take away some/most of the benefit.

Just checked, and mortgage interest on a first home won't trigger AMT, but doing a run on Turbo Tax is still a good idea, as it's good to see the deduction in context of everything else.

[Anonymous]

Anonymous wrote:

Anonymous wrote:If you use Turbo Tax to do your returns, you can just make a new file and enter in the new information and it will calculate it for you. It will tell you if you trigger AMT, which can take away some/most of the benefit.

Just checked, and mortgage interest on a first home won't trigger AMT, but doing a run on Turbo Tax is still a good idea, as it's good to see the deduction in context of everything else.

But local real estate taxes are not deducted from amt. And as your income rises your itemized deductions can get reduced. Def do TurboTax. And remember the tax benefit shrinks every year as your loan balance declines.

[Anonymous]

Do you know at what annual income you loose the mortgage interest rate benefit for decreasing your taxes?

[Anonymous]

Anonymous wrote:We're hoping to buy next spring or later, been saving for DP, etc. but wonder what we can expect from the tax benefit for itemizing housing costs (interest paid, property taxes?). Are there any calculators that can help us determine what might change from renting to buying? We don't itemize now, and from what I've read, the change could amount to a decent sum, enough for me to change our withholding, maybe free up a couple hundred dollars each month. FWIW, we have HHI of about $180k and are looking to buy in the $550-$650k range, 2 kids. Thanks for any advice!

Yes, you will save money in taxes. But the money you save is money that you are paying out to the mortgage company/the county anyway. So while you may be freeing up money via lower payroll tax deductions, you are spending more (for instance, property taxes that you dont pay when you rent) so its likely a wash. There is no free money when it comes to the IRS.

--Just call me buzzkill.

[Anonymous]

Assuming no AMT, you don't multiple the interest + property taxes by your effective tax rate, you multiply it by the top tax rate. If you are hit by AMT, fortunately you can still deduct your mortgage interest, but you can't deduct property taxes.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We're hoping to buy next spring or later, been saving for DP, etc. but wonder what we can expect from the tax benefit for itemizing housing costs (interest paid, property taxes?). Are there any calculators that can help us determine what might change from renting to buying? We don't itemize now, and from what I've read, the change could amount to a decent sum, enough for me to change our withholding, maybe free up a couple hundred dollars each month. FWIW, we have HHI of about $180k and are looking to buy in the $550-$650k range, 2 kids. Thanks for any advice!

Yes, you will save money in taxes. But the money you save is money that you are paying out to the mortgage company/the county anyway. So while you may be freeing up money via lower payroll tax deductions, you are spending more (for instance, property taxes that you dont pay when you rent) so its likely a wash. There is no free money when it comes to the IRS.

--Just call me buzzkill.

Well it depends on how much your rent is compared to future mortgage/property tax. Our rent was the equivalent of our current mortgage and we come out approx $1k ahead as a result of the deduction. We paid approx $12k more in federal taxes each year as a result of renting.

[Anonymous]

Anonymous wrote:Do you know at what annual income you loose the mortgage interest rate benefit for decreasing your taxes?

Starts at 311,300 in 2016 for married filers. But it is a pretty slow phase out.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We're hoping to buy next spring or later, been saving for DP, etc. but wonder what we can expect from the tax benefit for itemizing housing costs (interest paid, property taxes?). Are there any calculators that can help us determine what might change from renting to buying? We don't itemize now, and from what I've read, the change could amount to a decent sum, enough for me to change our withholding, maybe free up a couple hundred dollars each month. FWIW, we have HHI of about $180k and are looking to buy in the $550-$650k range, 2 kids. Thanks for any advice!

Yes, you will save money in taxes. But the money you save is money that you are paying out to the mortgage company/the county anyway. So while you may be freeing up money via lower payroll tax deductions, you are spending more (for instance, property taxes that you dont pay when you rent) so its likely a wash. There is no free money when it comes to the IRS.

--Just call me buzzkill.

Well it depends on how much your rent is compared to future mortgage/property tax. Our rent was the equivalent of our current mortgage and we come out approx $1k ahead as a result of the deduction. We paid approx $12k more in federal taxes each year as a result of renting.

+1

Our PITI payment is slightly higher than what we were paying in rent ($100 per month more) and the tax savings were significant. A very pleasant surprise, since we didn't try to calculate it out beforehand.