One of the key tax benefits related to home ownership is the mortgage interest deduction. Also, certain taxes are also deductible as well as other aspects can be written off. For complete understanding see IRS form 530. Additionally, whereas some folks are not able to use the 1040 form for other itemized deductions due to the limitations; once a home is purchased this step can often help get past the thresholds and allow for other tax deductions in addition to those related to home ownership. Additionally, there is a way to utilize the tax deduction to help pay for the home – see below an example I created back in 2011, however, the principles are the same today. Be sure to check with your tax accountant to ensure you are getting the appropriate write-offs for your individual situation.
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Or, see this illustration below and note the key aspects:
- As an example, someone who has purchased a home and currently has a $75,000 per year salary with a $115,000 loan balance
- Given this salary, for the 2011 tax season, this person is in the 25% tax bracket
- Once a person (or couple) has met the threshold for 1040A writeoffs they can also write off other approved items, such as charity, medical, etc.
- If we look at only the taxes and interest paid for the house, which sum to $8,874, then at 25% tax bracket this implies they will receive $2,218 tax refund. Or, equivalently, $184.87/month.
- Given that the tax refund would be $2,218 then one can increase their W4 witholding statement (with their accountant’s advice) and get the $184.87/month back in their paycheck – implying that the tax writeoff can help them pay for the house!