True or False: There is a tax benefit to buying a home with an FHA mortgage
Or
Things a Real Estate agent or FSBO should know.
Well the answer is yes, no and maybe. Oh yeah how can that be? Is there more benefit to having a conventional or FHA mortgage? Just so you know that I’m not blowing smoke. I used to be an Enrolled Agent that meant at one time I could practice law in tax court. I no longer practice tax law or preparation. But I still retain a bit of working knowledge. So now in the first year of an FHA mortgage or any mortgage for that matter there are extra deductions that make for greater tax benefits. After the first year tax benefits from an FHA mortgage are much easier to calculate. And since you will probably keep your mortgage for more than one year let us project tax savings for the second and subsequent years. The second thru fifth year of a mortgage will have similar tax benefits.
OK now that I got the lawyer crud out of the way some assumptions. Yes, yes I know what assumptions do. A single person and married couple are buying a home. The loan amount is $300,000 with annual property taxes of $2800. Terms are 30 years fixed at 5.5%, so the monthly payment (P & I only) is $1703.37. OK we have Jane Single (clever, how he slips a single gal in) and Jim Couple and Mary Couple married kids. Both make the same money (proving that women actually do make more than guys) $70,000 and this is taxable income.
From paragraph one above the part that is yes. If you happen to be single your tax benefits are pretty good. Without boring you to tears with numbers and such here it is. As a single person with taxable income of $70,000 you pay $11,513 in federal income taxes. When you deduct the $2800 in property taxes and the $16,399.19 in interest paid you lower your taxes to $8318 from $11,513. This is a saving of $3195 or $266 per month. So yes you do have a tax benefit.
Now the maybe or no part for M/M Couple. They have the same taxable income in fact the same everything. Before they get their mortgage their taxes are $6896 and after they are $5726. There is a tax savings of $1170 per year or all of $97.50 per month. So the benefit is there but you can definitely answer maybe or even no.
So Mr. FSBO or Ms. Real Estate Agent what do you tell your client. What do you say when the ask, “Is there a tax benefit when I buy a home with an FHA mortgage?’ Now you can definitely say, “Yes or No or Maybe.”
thefhaloanbuy@aol.com
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