How much am I going to save on TAX???

[thelinux]

Hi, I am thinking to buy an 600K home with $300K down.
My monthly home expense came out as about $2,500/month (This includes everything. Tax + MR + HOA + Insurance)
But I heard that the interest you pay on mortgage is tax deductible. If so, how much am I expected to save monthly?
Can anyone tell me approximate numbers?

BTW I am at 25% tax bracket.

Thanks!

 

[usctrojancpa]

Hi, I am thinking to buy an 600K home with $300K down.
My monthly home expense came out as about $2,500/month (This includes everything. Tax + MR + HOA + Insurance)
But I heard that the interest you pay on mortgage is tax deductible. If so, how much am I expected to save monthly?
Can anyone tell me approximate numbers?

BTW I am at 25% tax bracket.

Thanks!

Compute the estimated interest expense for the year and add the property tax amount (your choice on whether or not you want to include MR and assuming you don't get phased out of that deduction).  Then multiply that by your marginal tax rate for both Federal AND State and then divide by 12 to get your estimately monthly savings.

 

[rent]

The interest you pay on the first year of your mortgage is approximately $300,000 * Interest Rate. You can typically deduct the amount of your mortgage interest (as well as property tax!) from your taxable income. This means you'll save approximate 25% (your tax bracket) of your mortgage interest (and prop tax) in taxes.

 

[thelinux]

Hi, I am thinking to buy an 600K home with $300K down.
My monthly home expense came out as about $2,500/month (This includes everything. Tax + MR + HOA + Insurance)
But I heard that the interest you pay on mortgage is tax deductible. If so, how much am I expected to save monthly?
Can anyone tell me approximate numbers?

BTW I am at 25% tax bracket.

Thanks!

Compute the estimated interest expense for the year and add the property tax amount (your choice on whether or not you want to include MR and assuming you don't get phased out of that deduction).  Then multiply that by your marginal tax rate for both Federal AND State and then divide by 12 to get your estimately monthly savings.

I am sorry for being such a dumb but I don't understand most of what you said....  ???
I don't know how to estimate interest expense....
Is MR also tax deductible??? What do you mean by "don't get phased out of that deduction"???

I used calculator athttp://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx.
Is this the correct calculator? It says I can save over $5000 per year on tax.. Is this sounds like a correct number? I used 4.5% interest rate and 25% tax bracket.

 

[thelinux]

The interest you pay on the first year of your mortgage is approximately $300,000 * Interest Rate. You can typically deduct the amount of your mortgage interest (as well as property tax!) from your taxable income. This means you'll save approximate 25% (your tax bracket) of your mortgage interest (and prop tax) in taxes.

Ok, so...
300K x 0.045 (4.5%) = 13,500
13500 x 0.25 = $3,375

3375/12 = $281/month

Is this correct??

 

[irvinehomeowner]

If $600k home, assume 1% tax rate (don't include MRs), so that's $6000 per year you can deduct too.

 

[usctrojancpa]

The interest you pay on the first year of your mortgage is approximately $300,000 * Interest Rate. You can typically deduct the amount of your mortgage interest (as well as property tax!) from your taxable income. This means you'll save approximate 25% (your tax bracket) of your mortgage interest (and prop tax) in taxes.

Ok, so...
300K x 0.045 (4.5%) = 13,500
13500 x 0.25 = $3,375

3375/12 = $281/month

Is this correct??

I'm calculating of interest of about $13,400 for the first 12 payments.  Lets assume your property taxes are $6,000 then...

($13,400 + $6,000) * (25% + 8%) = ~ $6,400/yr or around $533/mo

 

[thelinux]

If $600k home, assume 1% tax rate (don't include MRs), so that's $6000 per year you can deduct too.

So I can also deduct property tax I paid from my income when calculating my state and federal tax???

 

[thelinux]

The interest you pay on the first year of your mortgage is approximately $300,000 * Interest Rate. You can typically deduct the amount of your mortgage interest (as well as property tax!) from your taxable income. This means you'll save approximate 25% (your tax bracket) of your mortgage interest (and prop tax) in taxes.

Ok, so...
300K x 0.045 (4.5%) = 13,500
13500 x 0.25 = $3,375

3375/12 = $281/month

Is this correct??

I'm calculating of interest of about $13,400 for the first 12 payments.  Lets assume your property taxes are $6,000 then...

($13,400 + $6,000) * (25% + 8%) = ~ $6,400/yr or around $533/mo

Wow that's a lot more saving than I thought. So MR is not tax deductible????

 

[irvinehomeowner]

If $600k home, assume 1% tax rate (don't include MRs), so that's $6000 per year you can deduct too.

So I can also deduct property tax I paid from my income when calculating my state and federal tax???

Generally speaking... yes.

But I'm not an income tax accountant so you should really talk to one to see exactly what you can save/deduct.

And yes... MR/CFD is usually not deductible... that also can be explained by a tax expert.

 

[usctrojancpa]

If $600k home, assume 1% tax rate (don't include MRs), so that's $6000 per year you can deduct too.

So I can also deduct property tax I paid from my income when calculating my state and federal tax???

Yes, generally speaking you can deduct property taxes as an itemized deduction on both state and federal tax returns (property tax deductions can be phased out via AMT if you AGI levels are too high). 

 

[usctrojancpa]

The interest you pay on the first year of your mortgage is approximately $300,000 * Interest Rate. You can typically deduct the amount of your mortgage interest (as well as property tax!) from your taxable income. This means you'll save approximate 25% (your tax bracket) of your mortgage interest (and prop tax) in taxes.

Ok, so...
300K x 0.045 (4.5%) = 13,500
13500 x 0.25 = $3,375

3375/12 = $281/month

Is this correct??

I'm calculating of interest of about $13,400 for the first 12 payments.  Lets assume your property taxes are $6,000 then...

($13,400 + $6,000) * (25% + 8%) = ~ $6,400/yr or around $533/mo

Wow that's a lot more saving than I thought. So MR is not tax deductible????

MR is generally not tax deductible but a lot of people still deduct it as it is included in your semi annual property tax bill.

 

[thelinux]

The interest you pay on the first year of your mortgage is approximately $300,000 * Interest Rate. You can typically deduct the amount of your mortgage interest (as well as property tax!) from your taxable income. This means you'll save approximate 25% (your tax bracket) of your mortgage interest (and prop tax) in taxes.

Ok, so...
300K x 0.045 (4.5%) = 13,500
13500 x 0.25 = $3,375

3375/12 = $281/month

Is this correct??

I'm calculating of interest of about $13,400 for the first 12 payments.  Lets assume your property taxes are $6,000 then...

($13,400 + $6,000) * (25% + 8%) = ~ $6,400/yr or around $533/mo

Wow that's a lot more saving than I thought. So MR is not tax deductible????

MR is generally not tax deductible but a lot of people still deduct it as it is included in your semi annual property tax bill.

Not deductible but still deduct??? Why people do this hen it's not deductible? Won't IRS reject your report then???

 

[usctrojancpa]

The interest you pay on the first year of your mortgage is approximately $300,000 * Interest Rate. You can typically deduct the amount of your mortgage interest (as well as property tax!) from your taxable income. This means you'll save approximate 25% (your tax bracket) of your mortgage interest (and prop tax) in taxes.

Ok, so...
300K x 0.045 (4.5%) = 13,500
13500 x 0.25 = $3,375

3375/12 = $281/month

Is this correct??

I'm calculating of interest of about $13,400 for the first 12 payments.  Lets assume your property taxes are $6,000 then...

($13,400 + $6,000) * (25% + 8%) = ~ $6,400/yr or around $533/mo

Wow that's a lot more saving than I thought. So MR is not tax deductible????

MR is generally not tax deductible but a lot of people still deduct it as it is included in your semi annual property tax bill.

Not deductible but still deduct??? Why people do this hen it's not deductible? Won't IRS reject your report then???

Unless you have other things on your tax return that would trigger flags for the IRS (like being self employed, having multiple rentals, etc) your chances of getting auditored for deducting MR was slim to none.  I would say that the vast majority of people deduct MR on their taxes whether they don't know any better or that they are playing the percentages.  Ultimately it's your decision as to whether you deduct it or not.  Worst case scenario is that the IRS audits your return and you end up paying the tax you owed without the deduction with some minor interest and penalties. 

 

[rkp]

Worst case scenario is that the IRS audits your return and you end up paying the tax you owed without the deduction with some minor interest and penalties.

Well technically it can be worse than that.  Having been audited in the past, I can tell you that the IRS can look back at past filings and also demand payment and penalties on previous years.  Also, the penalty can be multiple times what you owe so it can be a large number.  My situation had nothing to do with real estate and was related to being a transient worker and they wanted $4500 in tax plus 3x in penalty but after a CPA helped out, the penalty dropped to a much more nominal amount.   

That being said, outside of 1 person, all my OC friends with MR deduct it.  As for why, its like speeding.  Its against the law but everyone does it.  IRS will assume the prop tax number you are reporting is truly the prop tax portion of the bill and not the prop tax + MR but without requesting more info or auditing you, they wont know and mostly not care. 

I am not recommending you break the law, just telling you what I observe. 

 

[rkp]

And to your original question on understanding your tax benefits, do what I did.  Plug in the numbers in turbo tax or whatever tax program you are using to last years return and see what you would have saved.  It really helped me understand it for my exact situation vs a rough number.

 

[thelinux]

The interest you pay on the first year of your mortgage is approximately $300,000 * Interest Rate. You can typically deduct the amount of your mortgage interest (as well as property tax!) from your taxable income. This means you'll save approximate 25% (your tax bracket) of your mortgage interest (and prop tax) in taxes.

Ok, so...
300K x 0.045 (4.5%) = 13,500
13500 x 0.25 = $3,375

3375/12 = $281/month

Is this correct??

I'm calculating of interest of about $13,400 for the first 12 payments.  Lets assume your property taxes are $6,000 then...

($13,400 + $6,000) * (25% + 8%) = ~ $6,400/yr or around $533/mo

Oh, wait, where does that 8% came from????

 

[thelinux]

And to your original question on understanding your tax benefits, do what I did.  Plug in the numbers in turbo tax or whatever tax program you are using to last years return and see what you would have saved.  It really helped me understand it for my exact situation vs a rough number.

I tried it.
It only gave me $320/month save. I was expecting something about $500/month saving according to that rough calculation... 
I don't know why I am getting only this much saving....

 

[LAtoOC]

You might be hitting AMT limits

 

[akim997]

i say always deduct your MR.  i was audited, submitted my prop tax bills w/ mello roos...  wasnt even noticed.