Why is home mortgage loan considered a tax benefit ?
I am planning to buy a home and wanted to know why everyone thinks that home mortgage loan is tax beneficial. Example: - If we are paying around $15, 000 a year in interest property taxes and in tax refund 15% tax bracket we get back around $2K - 3K and we are happy. Its like paying government $100 and getting back $15 and we are happy with that. Correct me if I am wrong- the interest you pay on your mortgage is a tax deduction
- You're partially wrong. If you pay $15, 000 a year in interest and property taxes AND you are in the 15% tax bracket, you get to reduce that $15k from your income. This means you will pay $2, 250 less in federal income taxes. So in other words, you are paying $15k to save $2k. It's not good business sense, but it's better than not saving anything. but that's not the entire story. it gets worse. You only get to deduct the $15k IF AND ONLY IF you itemize your deductions instead of taking the standard deduction. If you are married, your standard deduction is $11, 400 $5, 700 if you are single. Since you are paying $15k in interest / taxes, you get to deduct an extra $3, 600 than you otherwise would have been en led to anyway. Therefore, your net tax benefit really is not $2, 250. It's only $540 15% of $3, 600. But wait. it gets worse. You are only paying $15k in interest / property taxes the FIRST YEAR of the mortgage. Keep in mind that part of your mortgage payment goes to principle. While your payment each year will be the same, the amount going towards principle and the amount going towards interest will change. Eventually, that $15k payment each year will only be a few thousand worth of interest. at which point there is ZERO tax benefit
- The government wants you to spend money so that it can stimulate the economy. If the economy gets going again, it will cost less for the government in the long run
- You are right at this point that mortgage loan is tax beneficial as mortgage loans provide the facility to pay the loan with tax cut payments
- You are wrong
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