Your Guide to Home Financing That Builds Wealth
Areas of Interest
Tax Benefits of Owning vs. Renting…
As you may know, once you purchase a home, townhouse or condo, you are entitled to the tax benefits associated with home ownership.
This benefit allows one to adjust their W‐4 or quarterly tax payment (for self–employed borrowers) to realize the benefit monthly rather than at the end of the tax year when filing ones tax returns. Based on this benefit, you are allowed to write off your interest up to $750k in loan amount and your property taxes up to $10,000 per year, calculated on the property tax rate which is currently 1.25% for California.
As an example to this, please see the following scenario based on the purchase price of $875,000:
| Loan Amt | Down Payment | Loan Program | P&I Payment | Property Tax | Home Insurance | Full PITI Payment |
|---|---|---|---|---|---|---|
| $700,000 | 20% | 7 Year Fixed | $3444/month | $911/month | $75/month | $4430/month |
Tax Benefit Analysis
| Tax Write Off | Net Tax Benefit | Net Effective PITI Payment |
|---|---|---|
| $3308/month | $793/month | $3637/month (Based on a 24% tax bracket) |
Based on the above scenario, please see the following terms and how they relate to the above information, which pertains to tax benefits:
The approximate “Tax Write Off” above is based on the interest paid on the loan per month plus property tax paid per month on the owner occupied property.
The “Net Tax Benefit” above is based on the monthly tax write off multiplied by the tax bracket which can range from
10% to 37% and is based on the house hold income made for that year. (Contact your CPA or EA for these numbers and any specifics on the above)
The “Net Effective PITI Payment” above is based on the “Net Tax Benefit” subtracted from the PITI payment above and shows the net effective payment in real dollars which can be used to compare rent on a monthly basis. For a specific scenario, please contact us directly.
Important Notes: The following information is only an approximation and can vary based on the actual rate, payment and household income of the borrower(s). For a complete analysis of this benefit, please contact your CPA, tax planner or tax accountant.
