The purchase of a home offers a tax advantage, if you can itemize your deductions after you file for taxes. Most believe that if you purchase a home, a tax benefit is implied, however, that's not always the case. The tax benefit of a home is driven by different factors including the following:
1. The size and the interest on your loan: Mortgage interest is normally tax deductible,
and initially in the life of a loan accounts for the largest tax deductible part of buying
a loan.
2. Real Estate or property taxes: Property taxes are tax deductible.
3. Points you pay on a loan.
4. Your income - higher the income, normally, higher is the tax bracket, and thus,
greater the tax benefit of buying a home
5. Tax filing status
6. Other itemized deductions
If your total itemized deductions exceed your standardized deductions, then the purchase of a home offers a tax benefit. The tax benefit is equal to the difference between your itemized and standardized deductions multiplied by your marginal tax rates. Most people believe that a hefty tax return after filing equals the tax benefit of buying a home. This is clearly an error, as after filing, you can always claim the standardized deductions. Purchase of a home, if the sum of the items from 1-5 exceeds standardized deductions, offers a tax advantage. Use the anawise.com report to understand the tax impact of buying a home. In addition to the above factors, it also takes the timing of your purchase as well as the mortgage on your existing home (if you are a repeat buyer) into consideration.
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