USA New Home Buyer - How does this impact my taxes

[b0chatma]

Hi All,

I'm planning on buying a new home and my realtor suggested talking with an accountant regarding the types of deductions that we can take so that I can consider that when thinking about total money spent per year on housing. She mentioned that we can deduct 10k a year in real estate taxes as well as the mortgage interest.

Can you let me know how I can best estimate how much that would result in money in my pocket? The home has property taxes of +10k/year and the mtge interest would be about 12k for the first year. Our AGI was 212k in 2019 joint filing.

We are currently renting and I can't make sense of all the moving parts of homeownership. So hopefully understanding how this impacts our taxes will be helpful and we would appreciate any insight into this.

thank you,

 

[b0chatma]

I'm assuming I just take the ~22k interest payment and property tax and multiple by 24% which is the federal tax bracket we are in to get ~5280 in annual tax savings. Let me know if I'm thinking about this correctly.

Thank you

 

[kirby]

Savings might well be zero. The Tax Cuts and Jobs Act limited property tax deduction to $10K and there are limits on the amount of mortgage debt that can be used for the interest deduction calculation. But let's assume the whole $12K is allowable. The sum is $22K of ITEMIZED deductions (although we are now at mid year so actual expense will be less but let's go with these numbers.) . But those $22K of ITEMIZED deductions are less than the 2020 standard deduction of $24,800. So if you have no other itemized deductions, you would select to use the standard deduction instead of itemizing deductions. Result: no tax savings from the new house in this case.

Your state's tax methods may differ from the Fed and you might see a benefit there.

 

[b0chatma]

Thank you. This is helpful and saved me from a significant miscalculation.