Tax Benefits
Vladimir is a single, childless guy who rents a house for $1200 a month. His federal income tax liability for the year: Adjusted gross income: $128,000 ∙ Standard deduction: single $4400 ∙ Personal exemption $2800 ∙ Taxable income $120,800 ∙ Vladimir's 2008 federal income tax: $32,129.
But if Vladimir buys a house with a mortgage payment of $1200 per month, everything changes:
Adjusted gross income $128,000 ∙ Itemized deduction for state income taxes: $3500 ∙ Itemized deduction for real estate taxes: $1500 ∙ Itemized deduction for mortgage interest: $11,400 ∙ Personal exemption $2800 ∙
=taxable income: $108,800 ∙ =Vladimir’s federal income tax: $28,409. He just saved almost $4000 by buying a house instead of paying rent.