When you are a renter you usually look at cash flow on a month to month basis, I know I did.  Tax advantages are difficult to appreciate because the good part, paying less in taxes, only comes once a year.

I’ve had great success with the following example of how current tax law helps homeowners:

You make $60,000
With no write-offs your tax  bracket is at least 30%
Which means you pay $18,000 in taxes

When you first purchase a home your payment is mostly interest.  So let’s lay your payment includes $1000 in interest each month. 

For the year that is $12,000
Subtract that $12,000 from your total earned for the year.
Your adjusted taxable income is now $48,000

30% of $48,000 is $14,400 paid in taxes
Subtract that from $18,000 and that is $3,600 LESS you paid in taxes

You now have $300 per month that you are paying to a mortgage company rather than the IRS.  You are a Homeowner!

This entry was posted on Tuesday, March 14th, 2006 at 2:59 pm and is filed under General Info, First Time Buyers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.