Tax Incentives of Home Ownership Example 2
on 08/2/2019 at 5:57 am
FACTS: Melinda and Steve recently moved to a new city and are leasing an apartment until they find the right home for their family. They have three children, ages 17, 14, and 9. Steve earns a salary of $55,000 per year, and Melinda $65,000. They currently pay state income tax on their salaries of $6,000 and make charitable contributions of $3,120. Melinda and Steve have found a home that costs $425,000. They make a down payment of 10% and take out a 30-year fixed rate mortgage at 4%. Their real estate taxes for the year are $4,250.
Old Law
- Salaries & Wages
- 120,000
- Personal Exemption
- (20,750)
- Standard Deduction
- (13,000)
- Taxable Income
- 86,250
- x Marginal Rate
- 25%
- Tax Liability
- 12,870
- Child Tax Credit
- (1,500)
- Net Tax Liability
- 11,370
Under Prior Law – Homeowner
- Salaries & Wages
- 120,000
- Personal Exemption
- (20,750)
- Itemized Deductions
- (28,559)
- Taxable Income
- 70,691
- x Marginal Rate
- 15%
- Tax Liability
- 9,651
- Child Tax Credit
- (1,500)
- Net Tax Liability
- 8,151
New Law
- Salaries & Wages
- 120,000
- Personal Exemption
- —
- Standard Deduction
- (24,000)
- Taxable Income
- 96,000
- x Marginal Rate
- 22%
- Tax Liability
- 12,999
- Child Tax Credit
- (4,000)
- Net Tax Liability
- 8,999
Under Prior Law – Homeowner
- Salaries & Wages
- 120,000
- Personal Exemption
- —
- Itemized Deductions
- (28,309)
- Taxable Income
- 91,691
- x Marginal Rate
- 22%
- Tax Liability
- 12,051
- Child Tax Credit
- (4,000)
- Net Tax Liability
- 8,051
***Disclaimer: This communication is not intended as tax advice, and no tax accountant -client relationship results**
