April 18, 2013

The tax deduction for home ownership is overstated, especially for low to moderate income people who buy relatively modest homes? Why?

9 thoughts on “April 18, 2013”

  1. Katherine Graham says:

    Because the tax deduction is based on itemized deductions (property taxes and the interest that you pay on your home), the standard deduction, the difference between the itemized and standard deductions, and the marginal tax rate. I’ll use the example Finley used Monday night. If you have $15,000 of itemized deductions, you have to subtract $12,200 (the standard deduction for a joint account). The actual benefit is the difference ($2,800). Next, you have to subtract the marginal tax rate (it varies by state/person, but Finley used 30% as a general rule of thumb). After you subtract all of these from the original $15,000, you get a whopping $840 of actual savings. The people who get the biggest deal from this tax deduction are high income people. They buy big homes and instead of a $15,000 itemized deduction, they might have a $115,000 itemized deduction.

  2. Mike Finley says:

    Another fine answer, Katherine. Here is the key point: Buy a home because you love it, you have 20% to put down on it, and you can easily afford the monthly payment (under 30% of your gross monthly income) on a 15 or 30 year fixed rate loan. DO NOT buy a home because it provides you a tax reduction. If that is one of your key reasons to buy, keep renting!

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  6. Brynell says:

    Ppl like you get all the branis. I just get to say thanks for he answer.

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