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Tax Benefits/Take-Home Pay Adjustments to Offset Higher Housing Payment

We have many renters buying homes for the first time. These renters are often conservative “savers” with tight budgets, insisting that their future housing payment remain close to their current rental payment.

These renters often fail to understand however that they can take advantage of the income tax benefits from home-ownership immediately after buying. They can do so by increasing the number of “allowances” or “exemptions” (for IRS purposes) and therefore their take-home pay.

For example, assume a borrower with $100,000 in income is renting for $2,000 per month. If this person buys a $500,000 home with 10% down, he might have a total housing payment of about $2,900 (principal, interest, tax, insurance, PMI).

He will also have approximately $25,000 of interest, property taxes and PMI he can deduct from his income every year before calculating his income tax liability. If he is in a combined 38% (state and federal) tax bracket, that $25,000 deduction will save him over $9,500 in income taxes. This saving works out to almost $800 per month, largely offsetting his housing payment increase.

The borrower can realize these savings soon after buying by increasing his take-home pay, as discussed above.

Caveat: We are not tax professionals, and our numbers are estimates only. We encourage all borrowers to contact a CPA for all tax-related advice.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646