Rent vs Buy: Debunking Myths about the Mortgage Tax Deduction

Over the next few weeks, we’ll be featuring snippets from an article authored by the National Apartment (NAA) and the National Multi Housing Council (NMHC) entitled “Don’t Buy the Myths: Renting Can Be a Smart Decision.” The article focuses on 9 widespread misconceptions regarding the benefits of homeownership over apartment rentals.

Myth #1- I’ll Reduce my Tax Bill By Owning a House

The first homeownership myth that we’ll be examining is that you can reduce your tax bill by owning a home. Unless the interest on your mortgage is greater than the standard deduction for joint filers, (the article uses the 2003 amounts for single and joint filers, which were $4,750 and $9,500 respectively) then there is no tax advantage to owning a house.

For example, if you bought a house in 2003 for $200,000 with a 5 percent down payment with 6 percent interest rate your total savings would be $514, assuming that you are in the 28 percent tax bracket. You indeed would have been able to deduct $11,336 in mortgage interest, but after you include other homeownership costs (maintenance alone is typically 1-2 percent of the house’s value annually) you may find that the tax alleged tax breaks that you had hoped to capitalize on are not exactly what you had imagined.

You can use some online calculators to determine the amount that you would be able to deduct, such as the one at Money-Zine. There are also a few articles about the mortgage tax reduction located at Investopedia and the American Chronicle.

Be sure to check out the full article, which can be found at the MyNewPlace Apartment Guide. Check back next week when we will feature Myth #2 Paying Rent is Throwing Money Away.

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