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My husband and I are considering buying a home for the first time and I’ve heard about the tax break we’d get, but I’m not sure if there’s a way to predict what refund we would get. It would greatly help in making our decision to buy or continue renting.

If we’re in the 25% tax bracket (combined income is $ 93,000) and pay 6.5% interest on a $ 160,000 mortgage loan, approximately how much should we get back?

4 Thoughts on How do I figure out my tax refund for owning a home?
  1. Reply
    William H
    December 14, 2012 at 3:28 am

    Mortgage interest and property taxes are tax deductible on your tax return. If you knew the amount of each then take 25% of that amount and you would know the amount you should be able to save on your federal tax return.

    This amount assume that you are itemizing on your return. Check to see how you could deduct without itemizing and compare the two.

  2. Reply
    December 14, 2012 at 3:48 am

    The only difference (besides being a good investment) of owning a home vs. renting would be deducting interest and real estate taxes on the home. Check your last return and see if you itemized deductions. If you did, then based on your income, and assuming you don’t fall into AMT, just add up the real estate tax and annual interest, multiplying by your tax rate to determine the net effect on tax.

    If you do not currently itemize, you won’t benefit as much. Say you live in a state with no income tax and don’t donate to charity- real estate taxes and interest may be your only deductions. The opportunity cost is that you are losing your $ 10,000 std ded (you are filing MFJ?). The net effect, assuming approx $ 10,000 in interest and $ 5,000 in real estate taxes, could be only a $ 5,000 decrease in your net income in that situation.

    If you would like a more detailed explanation, I would suggest modifying your question to include some facts such as if you were in AMT last year and whether your currently itemize your deductions. If you don’t, then include in your post your annual charitable giving, excise tax and state taxes, if applicable

  3. Reply
    December 14, 2012 at 3:55 am

    Merely owning a home does not guarantee you any refund. You only get a refund if your tax liability is less than your withholdings. Buying a home MAY reduce your tax liability a bit, but in most parts of the country the benefits are way overblown by the real estate industry. Read on, please.

    If you own a home you get to deduct your mortgage interest and property taxes if you itemize your deductions. For tax year 2007, you’ll need at least $ 10,700 in itemized deductions when filing a joint return to make itemizing worthwhile.

    You should come pretty close to that with the interest payments if you owned the home all year and your property taxes may well put you over that amount. You’ll get tax benefit from the excess over the standard deduction, the $ 10,700 previously mentioned.

    Assuming that your mortgage interest and property taxes are your only itemized deductions and they add up to $ 11,700 in total, you’ll get a reduction in your taxable income of $ 1,000 over the standard deduction amount and in a 25% bracket your tax savings will be $ 250.

    As you can see, you MAY get a tax break from owning your own home, but it won’t be a windfall in most cases.

  4. Reply
    December 14, 2012 at 3:59 am

    If you are already itemizing, then the first answer is correct, take 25% of the total interest and real estate taxes for the year, and that’s what you’ll save in taxes.

    If you aren’t already itemizing though, the calculation, and potential benefit, are very different from that. You’d have to calculate your total itemized deductions including whatever mortgage interest and real estate taxes you’d pay for the year, subtract the $ 10,700 you would get as a standard deduction if you didn’t itemize, and then take 25% of that to calculate your tax savings.

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