Submitted by Accomplished-Can-912 t3_11e6aok in personalfinance
As the title says , I was curious if I could save any money on taxes by owning a home . I saw a few articles online and it has confused me more . Can someone break it down for me ?
Total household income before taxes (600,000)- This could drop down to 325000 in the near future
Thank you for the reply !
Just for clarity, owning a home doesn't necessarily save you on taxes, but having a mortgage can
Right, technically it's when you don't yet own the home that you're getting a tax benefit, if any.
True , but isn't that what wealth building is š
You donāt āsaveā money. Example 450,000 home at @6.7% would be 2303 with 20% down. You will be paying around 23k in interest payments a year. There is a cap of 10k reduction due to the salt tax rule, so that would assume, your income would go from 600000 to 590000, saving you a ~ $3,700 plus minus a few hundred in tax liability. Rough estimation, but your spending 23k in order to save ~ 4K.
Can you elaborate a bit more on that
Are you saying it's better to rent the place for 3500 than pay 7000 to own it per month ?
No, you do not save money on taxes by owning a home - you may reduce some of the costs of owning the home via deducting those expenses on your taxes, but it is still an expense not savings.
You have to itemize.
The SALT deduction (property tax, sales tax, state income tax, etc) is capped at $10K. Mortgage interest is not. With interest rates ticking up and for expensive homes, yes, itās possible that along with SALT (and other itemized deductions) you could exceed the standard deduction of $13,850 (single) or $27,700 (joint). There is no savings until your itemized deductions exceed those levels.
TLDR, it depends. For most upper middle class or lower earners locked into a low rate mortgage, no. In your case, maybe.
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Another point here is that self employed folks get a better advantage from home ownership in most states due to SALT work around. Unsure if OP is, but with that income it wouldnāt surprise me.
Mortgage interest isn't SALT, but it does have different rules that can limit it depending on when the mortgage was incurred and how much the mortgage is for. You would be able to deduct all of the interest on a $450k ( $360k with the 20% down) mortgage.
Just what werewolfdad says. You can get a benefit for having a mortgage, and specifically, mortgage interest, if you can itemize. Once the mortgage is paid off, you don't get a tax benefit anymore.
But then you aren't paying for a mortgage anymore either.
So, save 8 to 10k in taxes, after paying 23k in interest
I am looking at houses averaging around 1 million in price .I believe interest should exceed the standard deduction
Mortgage interest on the first $750K of the loan is deductible. So yes, if you borrowed $750K at 6%, yes, that and your other itemized deductions would save you money on taxes as compared to just taking the standard deduction.
If your mortgage interest* + state/local taxes** + 501c3 donations > standard deduction, yes, you can reduce your taxable income. However, treat this as a discount on your mortgage interest - you're basically discounting the interest rate by your tax bracket. Don't buy a home just because you can save taxes. Buy a home only because it makes sense in your situation, and only when you are able to maintain it and deal with repairs.
*Capped at the first $750k borrowed
**Capped at $10k
Years ago,,,,,yes. Last 5 years, maybee. Trump kinda messed that up when he doubled the standard deduction. It also depends what state you live in. High tax states usually hit the cap on write offs for property and state deductions.
Werewolfdad t1_jack56e wrote
>. Can someone break it down for me ?
If your mortgage interest plus state and local taxes (and other itemized deductions) exceed the standard deduction, you may save some taxes if you itemize (which seems likely at your income level).
That said, I don't remember the threshold for the AMT under TCJA so that may complicate things