We pointed out recently how the payment associated with FHA financing is actually lower than the market rent for the same house. What we did not discuss in detail is the tax benefits, and they are significant.
We currently have a young married couple buying a $600,000 home with 25% down. Their combined income is $140,000 per year.
They will not only qualify for the $8,000 First Time Homebuyer’s Tax Credit, but they will also benefit tremendously from the tax deductibility of their annual interest payments and property taxes.
Their combined annual payments for interest and property taxes will be just over $32,000. They are allowed to deduct all of that from their income before calculating their tax liability. Because their combined State AND Federal Income Tax Rate is about 44%, they will save 44% of that $32,000 in actual taxes. In other words, buying a $600,000 house will shave about $14,000 from their annual income tax bill. This effectively makes their payment almost $1,200 less than what it appears to be on the surface.
First Time Buyers can “realize” their tax benefits up front by adjusting their “withholdings” and their “take home pay” after they buy. We highly recommend that all homebuyer’s engage a qualified CPA to assist with their taxes, and we happen to know a CPA who is delighted to help out with these matters. Please email us for her information if you would like it.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167