How can a $2500 per month payment on your home equate to a $1943 per month payment on a rental property?

Are you worried that owning a home will cost more per month than a rental payment? You may be pleasantly surprised at how much more a monthly house payment can be than a rental payment, and yet still equate to the same amount of money out of your pocket at the end of the year due to income tax savings.

All of your mortgage interest and property tax are deductible on your Federal and State Income taxes. Here is an example of what you could save:

You buy a home for $500,000 with a down payment of $100,000 and a 30-year fixed loan of $400,000 with a monthly payment of $2500 ($1333 Interest, $576 Principal, $524 Property Tax, and $67 Hazard Insurance).

The tax deductible portion of your mortgage:

$1333 Interest

$ 524 Property Tax

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$1857 per month is tax deductible

For this example, let's say your gross income is $108,000 per year; and you are currently paying Federal Income tax of about 25% of your yearly income ($27,000), and State Income Tax of about 5% of your yearly income ($5,400). This is a total of $32,400 in tax.

The tax-deductible portion of your monthly payment ($1857) for twelve months adds up to $22,284. Since your tax liability, in this example, is a total of 30% of your yearly income, and your yearly income is reduced by $22,284; you will pay $6685 less in taxes ($22,284 times 30%).

If you divide your tax savings by 12, ($6685/12) your monthly savings in this example is $557. For this example your monthly house payment is really costing you only $1943 per month, instead of $2500 per month.