Post # 1
I was told about this by our lender and I did some research online but can’t seem to fully understand. (Located in California btw)
I was told I would probably be getting a $3,600 tax rebate from the mortgage interest, PMI, and property taxes for a $1,700 mortgage payment (I have not purchased a home yet, just estimating it to one we put an offer for). He was saying it to make us feel a little better about the payment, stating that technically it would be like having a $300 monthly “discount”.
But when I calculate the numbers into H&R Block’s estimate calculator, it only says I would be getting a $750 rebate, so I don’t know what I’m not understanding here.
I used the same numbers from my 2015 taxes for comparison because in these I had to pay $200. So the only thing I changed was adding that I’m a homeowner and the estimated taxes, interest, and PMI that I would pay if I purchased the home.
Am I missing something here? Who do I believe, my lender or the tax calculator? I dont think he would just lie to us, but it could be I’m missing something, or he’s leaving something out.
I’m roughly estimating $3k/yr (or just under) in property taxes, $1,548/yr in PMI, and $9,800 interest payment for the first year.
Taxes are currently pretty simple: Filing single, only W2 income, no dependents or itemizations etc.
Post # 2
Hm, havent heard about this one. I purchased my home in ’08…or ’09, can’t remember 😳 but we got an $8k credit for purchasing at that time. As far as everything else, I don’t get money back for any of my taxes or interest. It’s applied to my deductions, I believe but my tax refund never changes when I enter that info.
Post # 3
Well, you’re doing it correctly by putting the numbers into your tax software. You should use last year’s return and add the three items you have–mortgage interest (plus points the first year if you pay them), PMI, and property taxes. Those three add up to about $15,000. If your effective tax rate is around 25%, then by taking those deductions you’ll get about 25% back from your taxes, or about $3,500. Your effective tax rate may be different, and if so you’ll get a different amount.
BUT, here’s the catch. The standard deduction that every married couple gets in 2015 is $12,600, so even if you don’t own a house you get that. So you’re only adding about $2400 to what you already would get. So you’re really only getting $2400 X 25%, or about $600.
Make sure that your tax software is using the itemized deductions option rather than the standard deduction. It may still be set on last years standard deduction. You can look on the tax form and make sure it’s using the number from Schedule A where it should. Let me know if you have more questions…I do a LOT of taxes 🙂 .
It’s not a “rebate” that you’re getting; you just have higher deductions when you own a house and the deductions decrease your income that is taxable.
Post # 4
I’m not a tax guru by any means but our realtor told us the same thing and suggested we look at more expensive houses. We decided against it because the numbers did not seem right when we plugged then in and you just never know what’s going to happen with taxes in the future.
FWIW, we usually paid a couple hundred dollars before buying a house. We closed in April with a mortgage, insurance and tax monthly payment of about $1200 and ended up getting $800 back this year. So, it did affect our taxes a bit but not anywhere near what our realtor was trying to convince us.
So, even though I’m not a tax genius, I would never count on a larger refund when budgeting for a home.
Post # 5
We bought our house last February and paid about $5k in interest, $6k in real estate taxes and $900 in PMI for 2015 and our refund only increased by about $750 compared to without buying our house.
Post # 6
srancho: I suspect this is the correct answer.
Post # 7
srancho: I agree with this for the most part (I do taxes too) but just to be clear, you can only deduct mortgage interset if you itemize your deductions. For many couples, there aren’t enough expenses to itemize to warrant itemization, so the standard deduction is most beneficial. Your tax software, depending on what you’re using, is often intuitive enough to determine which is better to take – standard deduction or itemization.
As for your lender, it’s a bit misleading for her to say you’ll automatically get a tax “rebate” for all of these things. There’s a few variables to consider. I’d suggest actually talking to a tax preparer or account in person to get a better idea of where you stand.
Post # 8
bellanotte11: You will not end up getting nearly as much back as you hope because of that standard deduction. You can itemize instead of taking the standard deduction, but as srancho: wrote, you only get back a small additional amount over what your tax refund/liability would have been without the home purchase.
Also, in the first year you will have even less of a benefit since, at this point, you are not buying a home in January. We bought mid-year, so the interest we paid out for that year was not even enough to justify itemizing. We ended up taking the standard deduction and it was as if we had not even purchased a house that year.
Go with your gut and the numbers from your tax software.
Post # 9
By rebate do you mean refund? I’m in CA too and paid $4700 in taxes about $7k in interest no PMI and am getting just under $5k back on fed. I’m single with 2 kids. You can only get as much as you paid into fed back so don’t expect more than that regardless of owning a home or not, so pay close attention to what you paid this year and you can use that as a max.
Post # 10
what’s the price of the house? We DEFINITELY pay enough in interest to make itemizing worth it, especially because you can also deduct state and local taxes (including property taxes).
Post # 11
srancho: We are not married yet, planning to make the date 6-9 months after we purchase our home so we are not filing taxes as married. When I played around with the estimator and selected filing married, it showed we would get 3k back. I’m not sure if the estimator is using the standard deduction or itemized deductions. For some reason I’m just having a hard time processing this information.
Would it be safe to assume he (the lender) is correct when estimating is as single with our current scenario? And then when we file married there will probably be not much change?
I called him again today saying I needed more clarification. He broke it down for me in terms of math, and on paper all the math seriously makes sense, but like with MrsFNL’s situation, it makes me feel unsure on if this is something that we should just see as an “extra”, if it happens then great if not then oh well, or if it’s something we can seriously consider as a type of alevitation for our monthly payment sort of.
Currently we feel comfortable with a $1,800 max payment, even though we know we’ll be making a bit more money in about a year or two, but if knowing we could get back $4k a year from taxes ($333/mo) it would be like having a $1,467 mortgage if we spread out the $4k into twelve months, and that would make us happily jump on a home we like with that price or even for a $1,900 one. Or, possibly it could influence us to go for a higher priced house that after the tax deduction would leave us at $1,800. We have enough in savings anyways to get us through a tight budget until we’re able to itemize it for the taxes, but I would only do it if it was temporary so we wouldn’t burn through our savings (I’d say no more than having to wait until the second tax season, so 2018 if we buy this year).
Post # 12
LilliV: The price on the home was $265k and we were going to give a $36k down, so the actual loan was going to be for $229k. These are the following numbers he calculated:
Post # 13
Keep in mind that depending on your income level you may be phased out of the deduction for PMI. I think it phases out if you make over $110k.
Also, since you are filing single the itemization of the mortgage interest and re taxes should be enough to get over the standard deduction level and if that’s the case, you can also deduct your CA state income taxes, charitable contributions, excise taxes (if you pay them On a vehicle), etc. All those things may add up to more of a refund but as everyone has said, It’s not fair for him to flat out say what you will or will not get back Unless he knows ur exact tax situation. once you are married the refund will change as your standard deduction gets higher so the addl benefit is less…and ur tax situation may change when you combine filings.
Buy what you can afford and what you are comfortable with. If you do get a good idea of what you expect for a refund, you should change your tax withholdings so that you get that money back in your pay check throughout the year rather than giving the IRS an interest free loan.
Post # 14
bellanotte11: what I’m sensing from your posts, is that this house is really stretching your budget to the limit. If that’s true, I’d urge you to consider waiting awhile to buy- if you are dependent upon a tax refund to stay afloat you are putting yourself in an incredibly risky position. What if one of you loses your job? What if something major in the house breaks and you need expensive repairs? What if something breaks on your car? Or you have a medical emergency and have to come up with $$$ for copays and deductibles?
Post # 15
bellanotte11: That will definitely be enough to itemize your deductions, but honestly as PP said if you’re running the taxes this closely it sounds like this purchase might be too much of a stretch for you. Every year you’ll be paying less and less in interest which will reduce that deduction. Your refund will also depending on your withholdings and income – for example the first two years I owned my house I got pretty big refunds (first year because I didn’t account for deductions in my withholding and the second because we forgot to change our withholdings to account for getting married) but this year we OWE $2300 to the federal government because I didn’t account for the fact that my income was going to be higher due to a new job and losing my 401k eligibility for a year (I usually stuff it with money to lower my taxable income). I’d honestly rather owe than get a refund, but I’m just saying you shouldn’t count on a refund to make the mortgage more affordable (you also shouldn’t be getting that big of a refund anyways because it’s better to hold on to your money all year, but that’s a different point). Also please don’t count on your income going up – it’s awesome if it does, but what happens if it doesn’t?