Tax Incentives of Home Ownership Example 2

Tax Incentives of Home Ownership Example 2

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: 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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