Mortgage Interest Tax Deduction - Exactly How Much Cash is That?

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One of the most indispensable financial benefits of owning a home is the tax deduction you can take from the interest paid on your mortgage and the asset tax paid on your home. You may be wondering exactly how much of a tax saving this is - are we talking a consolidate of hundred dollars or a consolidate of thousand? For a rough calculation of this tax savings:

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How is Mortgage Interest Tax Deduction - Exactly How Much Cash is That?

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Calculate the Total Deduction

Ask your lender what your total mortgage interest will be for the first full year of your loan. Ask your real estate agent what your asset taxes will be on the asset for the first full year of your loan. Add the total mortgage interest and asset taxes together to get your total deduction. For example: ,500 (Interest) + 4,000 (Taxes) = ,500 (Total Deduction)

Calculate the Exact Tax Savings
Determine your marginal tax bracket. For our example, we will use 28%. Take your total deduction from above and multiply it by your tax bracket percentage. For example: ,500 (Total Deduction) X 28% (Tax Bracket) = ,460 (Tax Savings)

What this Means

You will pay ,460 less in federal taxes that first year of your mortgage. Continue as you are with your withholding and receive this as hefty tax return check. Or, if you would like to translate this whole into a tangible monthly savings, divide the ,460 by 12 for a dollar outline of 5. Ask your owner to sacrifice your federal withholding by this 5, thus expanding your monthly take-home pay. Many homeowners will use this whole to offset their monthly mortgage payment, production the monthly cost of owning a home a bit easier to swallow.

Things to Note

In the calculation above, we used your current marginal tax bracket. If your wage increases, you may fall into a lower tax bracket, therefore decreasing the whole of your tax savings.

Additionally, as time goes by, you will be paying less interest each month on your mortgage (assuming you have a acceptable amortized mortgage). This will also decrease the whole of tax savings as the years go on.

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