• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
BH Logo
Deb Howard Logo
  • Login / Register
  • 866-542-2912
  • Email
  • Facebook
  • RSS
  • Home
  • Search
    • Search All Listings
    • Open Houses
    • South Lake Tahoe, California
    • North Lake Tahoe, California
    • Lake Tahoe, Nevada
    • New Listing Notifications
    • Tahoe Lifestyles
    • South Lake Tahoe Neighborhoods
    • Featured Listings
  • Buying
    • Schedule a Tour
    • The Process
    • Home Buying Basics
    • Relocation
    • Real Estate Terms
    • 1031 Exchange
    • Home Buyer Articles
    • All About Buying in Tahoe
    • International Investing in Tahoe
  • Selling
    • We Sell More Homes
    • Market Action Plan
    • Home Sale Statistics
    • What’s my Home Worth?
    • Real Estate Terms
    • Selling Tips
    • 1031 Exchange
    • Home Seller Articles
    • Lake Tahoe Home Inprovements
    • All About Selling in Tahoe
  • Our Team
    • The Deb Howard Difference
    • Success Stories
    • Team Profiles
    • About Deb Howard
    • Career Opportunities
    • What is an e-PRO
  • Tahoe
    • Real Estate Market Update
    • Lake Tahoe Schools
    • Informative Links
    • Lake Tahoe Home Services
    • Lake Tahoe History
    • Lake Tahoe Weather
  • Blog
  • Contact

Income Tax Time – Benefits of Homeownership

It’s Tax Time yet again and the California Association of REALTORS® (C.A.R.) decided to take a closer look at the benefits that go along with home ownership with respect to the consumption and tax benefits. We dived into the tax benefits of homeownership, as well as other of benefits being homeowners. Let’s take a look how this affects homeowners this tax season.

In the midst of tax season, home ownership reaps well-established tax benefits. Homeowners not only enjoy a roof over their heads, they have a long-term nest egg investment and are able to save on their taxes because of it. Because of the Mortgage Interest Deduction (MID) portion of the Federal tax law, homeowners are allowed to reduce their taxable income by a sizable amount. But how much do homeowners actually save? By how much more do they save in taxes over their renting counterparts?

In the last several years, we have seen homeowner’s equity gains—in other words, “return-on-investment”—rise steadily with an average return of over 20 percent per year because of record increases in home prices. Make that comparison with your stock portfolios or even your 401k performance, and real estate has offered quite a good return on your investment.

Yet along with home equity gains and overall appreciation, there are other huge tax advantages to owning your own home—interest & property tax deductions. For example, a homeowner who has purchased a home for $524,020 with property taxes at the going rate of about 1 percent of the property value, the property tax deduction for that home would be approximately $5,240 a year. In the first 12 months the interest paid on that home loan would total $24,470 (Interest calculated assuming a 20% down payment with 5.87 percent fixed-rate mortgage – Freddie Mac). Therefore, that homeowner’s total MID and property tax deduction for the first year of homeownership would be $29,700. If the owner falls in the marginal 25 percent tax bracket, the total tax savings in the first year of owning the home would be around $7,430 ($29,700 interest paid & property taxes multiplied by the 25 percent marginal tax bracket). The IRS allows the homeowner to deduct the entire amount of interest paid on a home loan up to $1,000,000 ($500,000 if married filing separately) as long as the owner includes Schedule A on IRS 1040, the loan is in the owner’s name, and the mortgage is secured by collateral (usually the home itself—IRS Publication 936). The long-run tax savings would be over $36,000 if the homeowner holds onto that home for five years (assuming no change in the tax bracket).

Put differently, the current tax system helps homeowners because it makes home- ownership more affordable. For example let’s take a look at two different households. One is a first-time buying household who bought their home for $445,400 (assuming 85 percent of the median price in California). After accounting for mortgage interest and property tax deductions, their taxable income would be $87,150. Assuming these new homeowners had no other deductions their total taxes owed to the IRS would be approximately $15,120 (for married filing jointly). Now let’s look at a renting household with the same earnings and marital status. Its taxable income would be $105,000, higher than that of the buyer because they do not have any mortgage interest or property taxes to deduct (assuming the standard deduction of $10,000). Under these same assumptions (holding all else constant), the renter household pays approximately $19,580 in taxes. Because of the interest and property tax deduction, homeowners are able to reduce their taxable income and achieve almost $4,500 in tax savings.

As we have seen, homeownership reaps tax benefits. Yet, homeownership has benefits beyond the checkbook or 1040 forms. High and stable homeownership rates contribute many important social benefits by boosting the quality of living areas such as education and civic involvement while lowering the crime rate and welfare dependency. (Source: NAR’s Social Benefits of Home ownership and Stable Housing). As homeowners, you not only reap the many advantages when tax season comes around, but also bask in the social benefits homeownership brings to your community.

Primary Sidebar

New Listing EmailNotifications

Sign Up

What's YourHome Worth

Details

Categories

  • Community Happenings
  • South Lake Tahoe Real Estate Update
  • Tahoe Locals
  • Uncategorized

ClientTestimonials

"We have done business with Deb Howard and Company for many years.  Deb and her associates have always made us feel like we are the most important clients they have.  More than that, Deb makes us feel... continued"
- 1097 Juniper
View All

REAL ESTATE LATEST NEWS

Stay abreast of the latest in local real estate news, note worthy events and special reporting each month. We hand selected information that’s worth reading so are “in the know.” View Articles

Lake Tahoe Real Estate Week Of September 13th, 2024

Summer to Fall: A Time of Change in Tahoe The dog days of summer are upon us, and every living creature in Tahoe seems … Continue about Lake Tahoe Real Estate Week Of September 13th, 2024

Footer

 deb howard logo

California Location
3045 Harrison Ave.
South Lake Tahoe, CA 96150

866-542-2912 Toll Free
530-542-2912 Local
Contact Us

Nevada Location
310 S Curry St.
Carson City. NV 89703

DEB HOWARD & CO.

At Deb Howard & Co., customer service isn't just something we do. It's everything we do. By tailoring our services just for you, we've elevated customer service to an unexpected level.
  • Email
  • Facebook
  • RSS

CA#01302763   •   NV#B.0052501.CORP   •   sitemap   •   admin   •   ©2025 All Rights Reserved  •  Real Estate Website Design by IDXCentral.com