Does home ownership have enough tax advantages to push buyers off the fence?
That depends.
With interest rates low, low-end buyers probably won't get a tax advantage from home ownership because they aren't paying much in interest. The standard deduction will offset any mortgage interest tax deduction.
For 2011 that deduction is $11,400 - so unless their interest is $950 per month or more, there's no tax savings.
But when you get into big dollars, the savings are tremendous.
I found a website called Money Chimp that shows how much tax you pay after deductions – and it can be eye opening.
What's the difference?
For the year 2011, a married couple filing jointly will pay $76,455 on an income of $300,000 (after all other deductions and adjustments.)
Pretend for a minute that they have $30,000 in deductible interest and no other itemized deductions. After adding back the standard deduction of $11,400, they'd still have an additional $18,600 in deductions for income tax purposes.
Their tax bill would drop from $76,455 to $70,317. That savings of $6,138 comes to $511.50 per month that could go toward savings, vacations, or whatever else they liked.
Here's another example:
$200,000 income after deductions equals a tax bill of $44,070.
Paying mortgage interest of $24,000 would reduce their taxable income by $12,600, to $187,400 and drop their tax liability to $40,542. They'd save $3,528.
And of course, at the same time, they'd be building equity in home of their own - rather than building equity for a landlord who could either raise their rent or tell them to move out when their current lease is up.
Check out that website I found, and use it to show your fence sitting buyers how much they'll save.
In fact, invite them to use last year's tax return to calculate how much more money they'd have had in their pocket right now if they'd been paying a mortgage instead of rent.
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