Tax Benefits Calculator The interest and points that homeowners pay on their mortgages are currently tax deductible, provided the taxpayer itemizes their tax deductions. In essence, a tax deduction is subtracted from the taxpayer's income prior to calculating the amount of taxes due, thereby lowering the amount of tax that they are required to pay for that year.
This calculator does the difficult work of trying to decide whether the purchase of a home will lead to tax benefits for you. It calculates your potential tax savings based upon the information that you enter. The amount of benefit that you will see is dependent upon the amount of interest that you pay, as well as the tax bracket that you fall into.
Homeowners will save a percentage, not the total, of the amount that they paid in mortgage interest. The percentage that they save makes the purchase of a home more affordable. After all, a little bit of money saved here and there can add up to quite a substantial amount. Most homeowners are bound by financial circumstances to borrow money when they decide to purchase a home. Therefore, they are going to pay interest no matter what. It just takes the sting out of it a bit, if they can also save a little on their tax bill.
Your tax benefit is calculated by comparing all of the available information at the time. Individuals who are in higher tax brackets pay a higher portion of their income to taxes. Therefore, it stands to reason that they will also reap a larger benefit from deducting mortgage interest from the amount of income they pay taxes on.
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- Home Value: Enter the current value of the home.
- Years Before Sell: Enter the number of years that you believe it will be before you sell the home.
- Amount: Enter the total amount of money that you will be borrowing. This includes the amount of the principal after your down payment, as well as any closing costs that you are not paying up front.
- Interest Rate: Enter the interest rate that is quoted with the mortgage you are considering. Enter it as a percentage.
- Length: Enter the term, or number of years, that the mortgage will be in place. Typically, this number will be 30, 20, 15, or 10.
- Points: Enter the number of points that you will pay on your mortgage during the first year. Points are calculated as a percentage of the principal amount of the loan. One point equals one percent.
- Closing Costs: Enter the total of all of the closing costs that will be assessed at the closing or settlement, including all fees and taxes.
- Annual Taxes: Enter the total amount of the property taxes assessed on the home. This should include state and local property taxes.
- Annual Insurance: Enter the total annual cost of homeowner's insurance.
- Annual PMI: Enter the total annual cost of private mortgage insurance, if any.
- Tax Rate: Enter the tax bracket that you fall into based upon your level of income. Enter it as a percentage.
- State Tax Rate: Enter the tax rate for your state as a percentage.
- Deductions: Enter the total amount of deductions that you will be able to claim on your tax form.
DISCLAIMER: There is NO WARRANTY, expressed or implied, for the accuracy of this information or it's applicability to your financial situation. Please consult your own financial advisor.
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