Tax Benefits of Home Ownership

The Value of Your Itemized Deductions:

It is one thing to say that home ownership generates itemized deductions for Mortgage Interest and Real Estate Taxes, but what does that mean and what are those deductions worth to you?

Itemized Deductions are worth something, if they exceed the amount of the Standard Deduction, which for 2008 was $5,400 for single taxpayers and $10,900 for married couples. Those amounts increased to $5,700 and $11,400, respectively for 2009 and will increase again slightly for 2010.
Itemized deductions also include medical expenses (in excess of 7.5% of Adjusted Gross Income), state income taxes, charitable contributions and theft and casualty losses; so that many of you may be at or close to the level of the Standard Deduction before taking into account Home Mortgage Interest and Real Estate Taxes from the purchase of a home.

The tax benefit value of your Itemized Deductions is the amount of those deductions times your marginal tax rate.

As an example: you were at a marginal tax rate for 2008 of 25% if your taxable income was over $32,550 if you are single and over $65,100 if you are married. Those amounts have increased for 2009 to $33,950 and $67,900, respectively. For 2009 you are in the 28% marginal tax bracket if you are single and your taxable income was over $82,500 and over $137,050 if you are married.

Taxable income is generally your Adjusted Gross Income less your itemized or standard deduction, less your personal exemptions; which were $3,500 per person for 2008, for yourself and all dependents. That amount has increased to $3,650 for 2009.

So if you had deductions from the purchase of a new home of $15,000 (a reasonable amount based upon a purchase price of about $275,000) and had a marginal tax rate of 25%, as noted above, the value of those deductions would be $3,750 ($15,000 x 25%) or about $300 per month to apply to the cost of your new home.

To learn more about Tax Benefits and Home Ownership contact Seth J Driggin

Posted by Seth J. Driggin – Partner

Jebb & Driggin is an Exclusive Buyer’s Agency

Filed under: Benefits of Owning a Home, Tax Benefits of Owning new Home, Tax Deductions and Home Ownership