Chapter 11 Money Smarts:
Mortgage Tax Deduction
Just how big are the tax benefits from
home ownership? That depends on the rate of interest you pay
on your mortgage and on your state and federal income tax
bracket. In order to qualify for a tax deduction, the interest
must be for a loan on your main home or a second home. Home
equity loans may also provide a tax benefit. Other types of
interest expense are not treated the same way for tax purposes
as home mortgage interest.
Go to the BusinessWeek Online
Finance Homes calculators. Under Mortgage Calculators,
click on “How much can I save in taxes?”
Input the following values:
|Term (in years)
|Your state + federal tax rate
|Yearly property tax
|Yearly property insurance
Click on the “get your results”
button and answer the following questions.
- What is the average yearly tax savings from owning your
- Click on the INPUTS tab and change your combined state
and federal tax rate to 35.8 percent. What is the average
yearly tax savings from owning your own home if you are
in this higher tax bracket?
- Change your interest rate to 6.50 percent. What is the
average yearly tax savings now?
- Is there an advantage to paying a higher interest rate
on your mortgage? Why or why not?
- Change the loan term to 15 years. What is the average yearly tax savings?