Tax Incentives of Home Ownership Example 1

Tax Incentives of Home Ownership Example 1

FACTS: Barbara earns a salary of $58,000 per year. She is single, and she is currently renting an apartment. She pays state income tax of $2,900 and makes charitable contributions of $2,088. Barbara has an opportunity to purchase a condo that she likes costing $205,000. Assume that she takes out a 30-year fixed rate mortgage at 4%, putting down 3.5%. If she buys early in 2018, her mortgage interest would be $7,856 and real estate taxes are $2,050.

Old Law

  • Salaries & Wages
  • 58,000
  • Personal Exemption
  • (4,150)
  • Standard Deduction
  • (6,500)
  • Taxable Income
  • 47,350
  • x Marginal Rate
  • 25%
  • Tax Liability
  • 7,491

Under Prior Law – Homeowner

  • Salaries & Wages
  • 58,000
  • Personal Exemption
  • (4,150)
  • Itemized Deductions
  • (14,894)
  • Taxable Income
  • 38,956
  • x Marginal Rate
  • 25%
  • Tax Liability
  • 5,393

New Law

  • Salaries & Wages
  • 58,000
  • Personal Exemption
  • Standard Deduction
  • (12,000)
  • Taxable Income
  • 46,000
  • x Marginal Rate
  • 22%
  • Tax Liability
  • 6,060

Under New Law – Homeowner

  • Salaries & Wages
  • 58,000
  • Personal Exemption
  • Itemized Deductions
  • (14,894)
  • Taxable Income
  • 43,106
  • x Marginal Rate
  • 22%
  • Tax Liability
  • 5,423

***Disclaimer: I am a tax accountant and a CPA licensed in Massachusetts , but I am not your accountant or advocate (Unless you have signed up to my services). This communication is not intended as tax advice, and no tax accountant -client relationship results**

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