Renter, paying $3000/mo.
OR
Purchaser of a $500,000 condo with $8000/yr. in taxes and $500/mo. Maintenance. (assuming a $450,000 mortgage w/ a 30-year fixed rate mortgage @6.5%, which comes out to a monthly payment of $4,011)
Okay, this was probably a no-brainer. (I'm a real estate agent...)
The purchaser spends less. But how much less?
- Less than $1000
- $1000-2000
- $2000-3000
- Over $3000?
The answer is over $3000. ($3,328.09) The difference is due to your Federal income tax payment. If you earn over $78,850 (single) you are in AT LEAST the 28% tax bracket. (A dollar earned puts 72 cents in your wallet.) The purchaser can take a tax deduction of $37,250. The monthly income tax reduction is $869 and the principal on the mortgage is paid down by $419, so the purchaser pays $277 LESS each month than the renter does.
Put another way, over the course of a year, the renter pays more than 13 months rent (Taxtember? Your Uncle Sam thanks you for the additional $869/mo.)
If this makes sense to you, let me know. You can buy a VERY nice condo in Jersey City for $500,000.
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