How to Calculate the Tax Savings of Owning a Home

One of the big advantages of buying a home is that the IRS allows you to deduct, within limits, the property taxes and mortgage interest on your annual tax return. Here's an easy way to figure out how much you'll be able to save.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Calculators
• Calculators

1. Calculate your monthly mortgage payment and property taxes (see Related eHows).

2. Multiply by 12 (if you are paying monthly) or 26 (if you are paying biweekly) to arrive at your annualized payment.

3. Multiply this annual amount by your federal income tax rate to arrive at a very reliable estimate of your tax savings.

Tips & Warnings

• While you should also consider the savings involved on state taxes, this shortcut calculation works reasonably well because a small portion of your mortgage payment - the repayment of principal - is not deductible and roughly equals your state tax savings.
• Do not include your insurance costs or private mortgage insurance (PMI) in your figures since these are not allowable deductions and will give an over-inflated value.

[lommers]

on 4/28/2008 if income is <100k/yr you can deduct PMI (primary mortgage insurance)