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Many Realtors and Lenders like to tout the tax benefits of a home purchase to their clients; and rightfully so as the financial implications can be huge. However, we must be careful overstating the tax benefits as the mortgage interest and property taxes are not always valuable....
Mortgage interest and property taxes are itemized deductions. So they only help taxpayers who itemize deductions, not those who take the standard deduction.
Taxpayers would choose to itemize deductions if the sum of those deductions exceeds what they would get for a standard deduction ($12,200 for married couple filing jointly and $6,100 for singles in 2013). Therefore, those who purchase a less expensive home (resulting in lower interest & taxes) may not itemize deductions if their interest & taxes add up to less than their standard deduction.
A couple purchases a $200,000 condo with 20% down. They acquire a $160,000 loan at 5% interest on a 15-year term. Their resulting mortgage interest in the first year is $7,833. The property taxes in the first year are $2,000. The total itemized deductions for these two figures is $9,833. This doesn’t even add up to the standard deduction of $12,200. So this couple gained no tax benefit from the home purchase**.
** Other itemized deductions come in to play such as state taxes paid, charity deductions, unreimbursed employee expenses, etc. Each situation should be analyzed individually.
HOW YOU CAN USE THIS:
This is an opportunity for you to be different than the average Realtor who assumes every home purchase gives the buyer a huge tax benefit. This is simply not true.
Do your homework. We can help you explore the tax benefits for your buyers before they are misguided. This will avoid your buyer being upset with you when they don’t get the refund they expected on next year’s tax return.
By referring them to a lender who also understands the tax implications of purchasing a home, you are going above and beyond for your clients. You are showing them you care about more than just getting them into a home!
Contact us any time regarding the tax implications of a home purchase...we’re here to help!