How Tax Benefits Work with Homeownership

How do tax benefits truly work?

We have all heard once or twice before that home ownership is the way to go rather than renting.  Maybe you have even been called crazy for renting rather than owning.  After all, paying $1,100 a month for your mortgage is really the same as paying $850 a month in rent.  The real question is how does that work.  Here’s the scoop: Mortgage interest (including some of your closing costs) and real-estate taxes are tax deductible. That may not sound too exciting, but it adds up and it will benefit you. Since most of what you pay for your mortgage in the first years is interest, on a $1,100 mortgage payment you get to deduct about $980 a month. That reduces your taxable income by about $12,000 a year. If you’re in the 25% tax bracket, that deduction is worth $250 a month for owning rather than renting.  You can afford more home, watch your equity grow, and most of all have the freedom to make your own rules in your own home. 
There are a few ways to see this benefit.  You can either wait for a bigger tax return after you file your income-tax return, or adjust what is withheld from your paycheck each month. If you claim additional allowances on your W-4 form, your paycheck will jump quickly. You will have to do the worksheet on the back of the W-4 form to determine how many more allowances you can claim. By using the above scenario, you could take two or three more.  Of course you may want to consult your CPA to get their professional advice.  No matter how you slice and dice it, homeownership is the way to go!