Tax Benefits of Home Ownership
The tax benefits and deductions that you are eligible to take in Nevada include writing off the mortgage interest and the property tax paid during the calendar year*. Property taxes are initially calculated at 1%- 1.5% depending on where your property is located. The purchase price is used the first year or two but then the tax adjusts every year or two according to the value when your area is re-assessed. You can always fight an increase in property tax when the postcard comes in the mail. The postcard informs you what the property tax distributions will go towards. I find it interesting. If you wait to object to an increase for the actual tax bill, it may be too late. In some cases, your tax bill may be sent to your loan holder for payment from your impound account (if that’s how your loan is set up).
Since everyone’s tax situation is different (and I am not an accountant) I have shown an example below. We always suggest you consult an accountant for your particular situation. Keep in mind that we are in Nevada and Nevada has no state income tax. This example is a hypothetical situation from when interest rates were higher and prices lower but it’s just so you can see how tax benefits are calculated.
If we assume the following:
$9,877 Mortgage interest paid (a loan of $150,000 for 30 years, at 7 percent, using year-five interest)
+$2,700 Property taxes (at 1.5 percent on $180,000 assessed value)
$12,577 Total deduction
Then, multiply your total deduction by your tax rate.
For example, at a 28 percent tax rate**: $12,577 x 0.28 = $3,521.56
$3,521.56 = Amount by which you have lowered your federal income tax
*Mortgage interest may not be deductible on loans over $1.1 million. In addition, deductions are decreased when total income reaches a certain level.
**The rate at which you’re taxed is determined by your tax bracket, which in turn is determined by how much you earned in a given year along with your filing status (single, married filing jointly, married filing separately, or head of household). IRS Publication 501 will help you determine your rate.