Saturday, October 18, 2008

There are No Tax Benefits to Owning a House for Most People!!

I was having tea with this elderly British couple from Canada today, and in between a spirited political discussion, the topic of home ownership came up. I was fascinated to learn that home ownership in Canada was a very different beast! Buyers are typically required to put 25% down (compared with actually getting cash here in the US), and most families pay their loans off in 10-15 years. This couple in fact paid their Canadian house in 6 years!! That's a stunning difference from the US.

The big difference is that there is no tax deduction for mortgage interest in Canada. That of course, is much touted for being a reason to buy a house. Save on the taxes. But that is a totally bogus reason for many homeowners.

Let's run the numbers. Using this calculator, I estimate my tax savings on a mortgage of $200,000 is just a bit over $5,000. Wow! Except that the standard deduction for 2008 is $5,450 for singles, $10,900 for couples filing jointly. Which means, you'd still elect to use the standard deduction, unless you have substantial other deductions.

And mind you, those tax savings were only for the first year - they diminish every year as more of your mortgage goes towards principal. Oh, and don't forget property taxes which can take a bit out of your wallet.

There might be many reasons to buy a house, but saving on taxes isn't one of them ...

1 comment:

adolfo said...

We’ve seen these types of houses pop up all over the radar. And now in the credit crunch that we’re in, the Dems are proposing that we remove the tax benefit for those purchasing such large homes.
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