by Celeste Marchand
Everyone knows that owning a home is the American dream, but did you know that borrowing to pay for one is a taxpayer's dream? Home mortgage interest is deductible on your income taxes if you itemize. You can deduct the interest on up to one million dollars of home mortgage debt, whether it is used to purchase a first or a second home. You can also deduct the interest on up to $100,000 of home equity debt, even if you don't use the money for home improvements. Real estate taxes are deductible as well. With the availability of these tax deductions, you should consider whether borrowing on a home is right for you.
What could the home mortgage deduction mean to you? What follows are some examples of the potential tax savings for several scenarios.
In this example Bob saves $3,720 in federal income taxes. In addition, his monthly housing cost stays the same and he owns his home, rather than renting. Good deal, Bob!
Bob saves $2,269 on his federal income taxes by taking out a home equity loan!
The $1,100 Bob pays for real estate taxes on his 2nd home and the $10,200 he pays for mortgage interest on his 2nd home save Bob approximately $3,500 on his federal income taxes in 2008. Bob is so slick, fulfilling his dream of owning a 2nd home and saving money on his taxes!