It’s no surprise to most people that buying a house provides big federal income tax breaks. Below we’ve included a real example of how much this actually equates to.
In short, everyone is allowed a standard and personal deductions. Everyone is also allowed to itemize certain expenses as well, that is as long as they add up to more than your standard deduction allowed.
The expenses that are allowed to be itemized are:
1. Charitable contributions
2. Automobile registration
3. State tax withholdings
4. Real estate property taxes
5. Mortgage interest
For most folks who don’t own real estate, the first 3 of these very rarely will add up to more than the standard deduction allowed. However, when real estate tax and mortgage interest come into play, it’s a whole different story.
Below is a side-by-side example of what someone who earned $50,000 in 2016 would have paid in taxes if they did and did not own real estate. The example is based on a $225,000 home purchase.
This example shows how a homeowner with a modest income who buys an average priced home can save $1,736 per year on federal income taxes. With some simple adjustments to your withholding exemption this would mean $145/month of cold cash in your hand.
Homeownership = Cash in your pocket!