f, like most first-time buyers,
you are presently renting, it's easy to calculate
your cost - simply, the monthly rent you pay.
(Utilities, phone, cable, and other costs can be
ignored in this comparison because they'll be
approximately the same whether you rent or buy.)
But
calculating the cost of homeownership is much
more complicated, because income tax
considerations affect your bottom line. And
there is, in addition, the uncertainty about how
much the value of your home will rise (or even
fall) in the coming years.
As a tenant,
you may be taking a standard deduction on your
income tax return. This is the time to judge how
that standard deduction stacks up against the
amount you'd be able to subtract from income if,
like most homeowners, you itemized deductions
instead.
Once you
itemize, you can deduct:
- Home
mortgage interest;
- All
real estate taxes on any property you own;
- Your
state income taxes;
-
Charitable contributions;
-
Medical and dental expenses that exceed 7.5%
of your income;
-
Personal property taxes if your state has
them; and most important
-
Certain moving expenses
At the start of a
mortgage repayment
schedule, when
the debt hasn't been reduced yet, almost all of
your monthly payment goes toward interest. A bit
goes toward reducing principal (the amount
borrowed), so that the next month you're
borrowing a bit less, and owe a little less
interest. That allows more of your next payment
to go toward reducing principal. However, this
process is very slow in the beginning and the
interest portion remains high for many years.
Between
the mortgage
interest and the property tax deductions,
you can figure that Uncle Sam is shouldering
part of your monthly mortgage payment - 28% of
it, in fact, if that's your tax bracket. Your
state income tax bracket can also be added to
that, before you calculate how much you save on
income tax as a homeowner.
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