MYTH# 1: Benefit from Morgtage Tax Deduction

Reality: A majority of owners reap no annual tax benefits from owning a house.

The biggest homeownership myth in the country is that owning a house is a huge tax break. If your mortgage interest and other qualifying expenses aren’t more than the standard deduction ($9,500 for joint filers, $4,750 for singles in 2003), there is no tax advantage to owning. That’s one reason why only 34% of all taxpayers itemize.[3]More...

Even if you are able to deduct your mortgage interest and property taxes, remember that depending on your tax bracket, you are still only saving no more than 10 cents to 35 cents in taxes for every dollar you pay in mortgage interest.

Reality Check

Assume you buy a $200,000 house with a 5% down payment at a 6% interest rate. Your total net tax savings, assuming you are in the 28% tax bracket, is a mere $514. That’s right. You will be able to deduct $11,336 in mortgage interest, but you would have gotten a $9,500 standard deduction without buying.

So your tax savings are $11,336 minus $9,500 times 28% tax rate, which equals $514. Once you factor in your maintenance and repair expenses, your tax savings could quickly disappear. Maintenance costs often run between 1% and 2% of your house’s value annually, depending on the house’s age (See Myth# 3).

Assuming a conservative 1% maintenance cost, you may have to spend $2,000 to save $514 in taxes.

Don’t Buy the Myths

Once you factor in the standard deduction and maintenance costs, you could end up spending thousands just to save a few hundred dollars in taxes.

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