Are you renting right now? Have you had many of your friends who own their own homes hassle your about making the plunge and buying a home? Would you be surprised If I told you that sometimes it does not make economic sense to buy a home for tax purposes? Owning a home has other advantages including the potential for appreciation with the property and the opportunities for making changes to the property as you see fit in order to make it more of a home for your family. However, depending on your personal situation, and the other itemized deductions you have, owning a home may not make sense for taxes. In order to claim the mortgage interest and real estate taxes deduction, you must itemize. Below is a list of the standard deduction amounts for 2010:
Single – $5,700
Married Filing Jointly – $11,400
Married Filing Separately – $5,700
Head of household – $8,350
Qualifying widow(er) – $11,400
Example 1 The net effect for deducting mortgage interest would be as follows:
- Net interest deduction $11,500
- Tax refund 2,875
- Net Cash Paid 8,625
Example 2 The net effect for using the standard deduction for married filing joint is as follows:
- Standard deduction $11,400
- Tax refund 2,850
- Net Cash Paid 0
As shown in the example, although the tax refund in example 1 is $25 higher, no mortgage interest was paid to the bank, so the taxpyer actually came out $8,600 ahead. The standard deduction versus the amount of estimated itemized deducations is a consideration when deciding on purchaing a home. A home puchase does not always guarantee a better tax situation.
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