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The Tax
Implications of Buying Your Home |
As you've figured out, owning
a home is an expensive proposition. Lucky for us, though,
there's a silver lining to our little black cloud. What is
it? Elementary, my dear Watson! It isn't a Sherlock Holmesian
deduction. It's a tax deduction. And it's major.
When you file your federal and state income tax forms, you'll
be able to deduct mortgage interest and property taxes (assuming
that your loan is for $1 million or less).
So how much is this really going to save you? Well, let's
hop on over to our Foolish calculator to find out. It works
like this: Let's say that you're in the 28% tax bracket. Let's
also say that, once you get your loan, you end up paying $1,000
a month. The interest portion of that $1,000 is tax-deductible
-- and, in the early years of repaying the loan, almost all
of it is interest. This means (assuming that you have other
deductions at least equal to the standard deduction) that
it will lower the amount of money on which you pay taxes.
And this, of course, means that your tax bill will be significantly
lower -- so you'll effectively end up having paid something
like $720 a month for that loan. ($1,000 minus 28%, or $280.)
This is not to say that the reason to buy a house is to save
taxes, but it sure is a nice perk. And the place you live
will belong to you, not some landlord who doesn't know your
name, won't fix plumbing problems, doesn't like you knocking
holes in the wall to hang paintings, and threatens to call
the police when you try to sneak a waterbed up the back stairway.
One caveat -- be sure to check with your accountant to make
sure that you're going to be able to get the tax savings you
expect. The likelihood is that you will, but you don't want
to count on this kind of savings and then discover that for
some reason you've miscalculated.
So go ahead, slosh away. If the waterbed springs a leak, it's
your problem. Welcome to the joys of home ownership! |
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