By JLP | October 18, 2006
Here’s a look at how the mortgage deduction can affect your taxes. The table below assumes the following:
Using the numbers for the 2006 tax year.
Family of 4, which represents 4 exemptions at $3,300 each.
$100,000 income with $10,000 going into a 401(k) with no other adjustments to income.
$200,000 mortgage with $15,170 in annual payments and $13,000 in interest paid.
$3,000 in annual property taxes.
$16,000 in itemized deductions and $10,300 for the standard deduction.
Keep in mind that I had no other itemized deductions besides mortgage interest and property taxes. In reality, most people would also deduct charitable contributions and either state income tax or sales taxes. It’s also possible that some families could deduct medical expenses but only the amount that EXCEEDS 7.5% of their adjusted gross income (for this example, they would have to exceed $6,750). I included property taxes in the calculation because they are a significant expense for most families. I didn’t include property tax on the non-mortgage side because they would not have been enough to itemize. So, if you remove the property tax deduction, the tax savings would be $675.
I’ll try to come up with some kind of calculator so that you can play with the numbers yourself. I’ll hopefully have it posted later today.
Right now, I would like you to weigh in on this example. Was I fair and balanced? My goal for this blog is to offer the rational side of personal finance and leave the emotional stuff to you.