Big Tax Advantages to Buying vs. Renting

The U.S. Federal government desires to encourage Americans to be homeowners.  A big component of it is encouragement is in the form of a very generous earnings tax write-off to Americans who own their own houses.  Numerous individuals who are renters forget about this big benefit of home ownership and do not understand they would pay considerably less federal income taxes if they purchased a home vs. renting.

When you purchase a home with a FHA mortgage (or any other type of home mortgage) you are allowed to write-off the mortgage interest of the FHA loan and your property taxes.  This can outcome in the biggest income tax write-off most individuals will have their whole lives.  When you are renting, you do not have this earnings tax write-off, and a lot much more of your paycheck is not going to you, but going to the Federal Federal government in the form of earnings taxes.

A very crude way to estimate how a lot you would save with the income tax write-off you obtain when you buy a home is to estimate the yearly mortgage interest you pay with the FHA loan + property taxes and then several that by your federal income tax rate.  So let’s say you have a $300,000 mortgage at five% and your property taxes are $4,000 per yr.

….so you are saving $five,700 a yr buying vs. renting!   Divide that by 12 and that is $475/mo in earnings tax savings.  You could appear at it this way, a $1,525/mo lease payment would be equivalent to $2,000 house payment.  Because when you lease you have no earnings tax write-offs if you are salaried, so you are having to pay $475/mo much more in federal taxes than if you were a house owner.

Following you purchase a home, if you are compensated W-2, you can speak to your HR Dept. and alter your deductions on your W-4 and have less federal taxes taken out of your paycheck, so you will take much more home every month.

The tax benefit is a main cause more than the long haul why homeowners develop much more wealth than renters.  Most individuals who are renters by no means have a big enough deduction to make it past the regular deduction and as a result pay the optimum in federal earnings taxes.

There are also additional items that you can write-off your income taxes on the yr the you buy.  The biggest incentive is the special $7,500 tax credit score that is being offered by the U.S. Federal government for purchasers who haven’t owner in the past 3 years and purchase a home by June 2009.  This is component of the Federal government stimulus package deal to revive the U.S. Economy.  This tax credit score permits you to one hundred% wipe away up to $7,500 in federal income taxes.  And if you have less than $7,500 in earnings taxes, the Federal government will refund you the distinction.  So if you only owe $2,500 in earnings taxes, the Federal government will send you a check for $five,000 for the distinction!

In addition, in the yr you buy you can write off points compensated to purchase down the mortgage interest rate and particular closing costs associated with buying.  This is can be an additional substantial earnings tax savings.  Ycan also write-off the mortgage insurance associated with an FHA mortgage.

So in summary, if you are renting, you ought to take a appear at what you are having to pay in lease and what you would be having to pay monthly as your complete housing cost if you were to purchase with an FHA home mortgage.  Then subtract the monthly tax savings from the housing payment and see how it stacks up in opposition to your lease payment.  And do not forget when you purchase you are not just having to pay mortgage interest, you are ALSO having to pay down the principle of the FHA mortgage, to where you will one day own the home totally free & distinct with no mortgage on it!  When you lease you are only having to pay your landlord so HIS home (not yours) will one day be totally free and distinct.

Please call or email me if you have any questions or would like to talk about qualifying for an FHA Home Mortgage or any other home mortgage financing.

Warm Regards,

Rob Chomentowski

Sr. Mortgage Officer and FHA Specialist

Affinity Financial

858-922-7899 (direct)