Tax Benefits
Vladimir is a single, childless guy who rents a house for $1200 a month. His adjusted gross annual income is $128,000. He has $3500 state income tax withheld from his paychecks during the year and qualifies for no itemized deductions. His federal income tax liability for the year:
Adjusted gross income: $128,000
Standard deduction: single $4400
Personal exemption $2800
Taxable income $120,800
Vladimir's 2008 federal income tax: $32,129. Ouch! That’s a lot of Wii games!
But if Vladimir buys a house with a mortgage payment of $1200 per month, everything changes:
Adjusted gross income $128,000
Itemized deduction for state income taxes: $3500
Itemized deduction for real estate taxes: $1500
Itemized deduction for mortgage interest: $11,400
Personal exemption $2800
=taxable income: $108,800
=Vladimir’s federal income tax: $28,409. He just saved almost $4000 by buying a house instead of paying ren