| If, like most first-time buyers, you are
presently renting, it's easy to calculate your cost - simply, the
monthly rent you pay. (Utilities, phone, cable, and other costs can
be igNored in this comparison because they'll be approximately the
same whether you rent or buy.) But calculating the cost of homeownership
is much more complicated, because income tax considerations affect
your bottom line. And there is, in addition, the uncertainty about
how much the value of your home will rise (or even fall) in the
coming years.
As a tenant, you may be taking a standard deduction on your income
tax return. This is the time to judge how that standard deduction
stacks up against the amount you'd be able to subtract from income
if, like most homeowners, you itemized deductions instead.
Once you itemize, you can deduct:
- Home mortgage interest;
- All real estate taxes on any property you own;
- Your state income taxes;
- Charitable contributions;
- Medical and dental expenses that exceed 7.5% of your income;
- Personal property taxes if your state has them; and most important
- Certain moving expenses
At the start of a mortgage
repayment schedule, when the debt hasn't been reduced
yet, almost all of your monthly payment goes toward interest. A
bit goes toward reducing principal (the amount borrowed), so that
the next month you're borrowing a bit less, and owe a little less
interest. That allows more of your next payment to go toward reducing
principal. However, this process is very slow in the beginning and
the interest portion remains high for many years.
Between the mortgage interest and the
property tax deductions, you can figure that Uncle Sam
is shouldering part of your monthly mortgage payment - 28% of it,
in fact, if that's your tax bracket. Your state income tax bracket
can also be added to that, before you calculate how much you save
on income tax as a homeowner.
|
KNow Your Budget 
