Truckee Real Estate Tax Benefits of Home Ownership

Truckee Real Estate - Lake Tahoe Real Estate and The Tax Benefits of Home Ownership

Bonnie Jessee, ABR 530 412 3984

Everyone knows that owning a home is the American dream, but did you know that borrowing to pay for one is a taxpayer's dream? Home mortgage interest is deductible on your income taxes if you itemize. You can deduct the interest on up to one million dollars of home mortgage debt, whether it is used to purchase a first or a second home. You can also deduct the interest on up to $100,000 of home equity debt, even if you don't use the money for home improvements. Real estate taxes are deductible as well.

What could the home mortgage deduction mean to you? What follows are two examples of the potential tax savings.

"Bob" rents a home at a cost of $1,200.00 per month. He is single with no children and takes the standard deduction on his income taxes. His adjusted gross income is $128,000. He has $3,500 in state income tax withheld from his paychecks throughout the year, but doesn't qualify for any other itemized deductions. Bob's federal income tax liability for 2008 will look something like this:

Adjusted gross income $128,000-less standard deduction, Single $4,400-less personal exemption $2,800

Taxable income $120,800

Bob's 2008 federal income tax $32,129

Suppose there is another "Bob" out there. This Bob is single with no children and is paying the mortgage on the home he purchased a few years ago. Bob has been saving up and this year he fulfills his dream of purchasing a vacation home. It's not much, just a cabin in the woods, but it has a bedroom, bath, and kitchen. Here is what Bob's second home does to his tax liability for 2008:

Adjusted gross income $128,000-Less itemized deduction for state income taxes $3,500-Less itemized deduction for real estate taxes on 1st home $1,500-Less itemized deduction for mortgage interest on 1st home $7,800-Less itemized deduction for real estate taxes on 2nd home $1,100-Less itemized deduction for mortgage interest on 2nd home $10,200-Less personal exemption for Bob $2,800

Taxable income $101,100

Bob's 2008 federal income tax $26,022

The $1,100 Bob pays for real estate taxes on his 2nd home and the $10,200 he pays for mortgage interest on his 2nd home save Bob approximately $3,500 on his federal income taxes in 2008. Bob is so efficient, fulfilling his dream of owning a 2nd home and saving money on his taxes.