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The Facts about Tax Advantages

Most people are quick to point out that investing in real estate presents some incredible tax advantages, but what does that really mean?

It can be tricky to imagine how to imagine how tax advantages can work, so to illustrate how home ownership can benefit you, let’s consider the following example.

Take your average two bedroom condo at $150,000. Let’s say you put 10% down at $15,000. Your total loan amount is $135,000. With a 30-year fixed mortgage at 6% interest, your monthly payment is $809 for the first year. Of this amount, $675 goes towards interest and $134 goes towards the principle. In addition to your mortgage payment, you will have property tax. For this example, it will be $325, figured upon a tax appraised value of $150,000 and a 2.6% tax rate. This full amount is considered a deduction to your tax bill. Because you are buying a condo in this example, insurance and maintenance is paid through Home Owners Association (HOA) dues. Your HOA dues in this example are $150 per month. This brings your total payment to $1,284 per month before any tax advantage is considered.

Mortgage interest plus property taxes for the year equals $12,000 in total deductions. If the marginal tax bracket that you file within is 30%, your real dollar savings are $3,600 for the year, which means your monthly payment then nets out at $951!


Monthly Payment = $1,284 PITI (Principal, Interest, Taxes, Insurance)

Principal = $134
Interest* = $675 x 12 months = $8,100
Taxes* = $325 x 12 months = $3,900
Insurance = $150

Total Deductions for year = $12,000 x .30% (marginal tax rate) = $3,600/12 months
This represents $300 in savings per month.

What IS Deductible?

What is NOT a Deductible?