The Master's Tax & Financial Services
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Tax Savings from Home Ownership

Most people understand that there are some tax savings that we enjoy by owning our own homes. While this is true, it is not always as big of savings as some Real Estate agents allow people to believe.

So what are those savings? They come in two forms: mortgage interest and property taxes.

But where the difficulty comes from is in the trade-off of tax preferences. Most people who do not own their home with a mortgage take what is called the Standard Deduction on their taxes. This is a set amount that we are allowed to subtract from our income before calculating our tax liability. The reasoning is that everyone has some tax deductible expenses and thus we are allowed to make a deduction to cover that. If your deductions exceed the standard allowed amount, then you can itemize those deductions and claim the larger amount. Here are the Standard Deduction amounts:

Filing Status 2019 2020
Single $12,200 $12,400
Head of Household $18,350 $18,650
Married Filing Joint $24,400 $24,800
Married Filing Separate $12,200 $12,400
Qualifying Widow/er $24,400  

So while we gain some deductible expenses from owning our house, we forfeit the Standard Deduction when we claim the itemized deductions. Therefore the savings is based on the difference between the two.

Note also that this is a deduction from income before calculating your tax liability. The amount of savings you experience is dependent upon which tax bracket that you are in.

You should also realize that the entire house payment is not deductible. Only the interest is deductible. (The assumption here is that we are addressing your primary residence. Other rules apply to additional houses.) However, in the early years of a mortgage most of the payment is for interest, so this difference may not be significant.

The other item that is now deductible is the property tax. And once you are itemizing deductions your state income tax payments are deductible as well. Beware, however, that under AMT rules taxes paid are not deductible.

A number of other items are deductible as well - items unlreated to home ownership. This includes excessive medical expenses, charitable contributions, employee expenses, etc.

We would be happy to work with you to determine your deduction opportunities.

"Tax software is no substitute for tax knowledge."

Any views expressed herein are based on our best information. The content of this web site was written as general information without specific individual information and thus may not apply in all situations. This material was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

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