Tax Benefits

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Tax Benefits


John 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

John's 2008 federal income tax: $32,129. Ouch! That is a big number!

But if John 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 , THIS WILL MAKE  A DIFFERENCE!!

Personal exemption $2800

=taxable income: $108,800, this is much less than his previous taxable interest.

=John’s federal income tax: $28,409. He just saved almost $4000 by buying a house instead of paying rent. How awesome is that!