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Tax Advantages of Home Ownership

Click Here To Calculate Your Real Estate Tax Break

As a licensed tax preparer in California, let me do my best to help you understand the excellent tax benefits of homeownership. Below we are comparing the tax returns of man who is renting with the tax returns of the same man as a homeowner to illustrate the tax advantages of homeownership. The tax savings of homeownership are substantial. Below the tax returns is a complete analysis to clarify these tax benefits of home ownership.


Joe Renter's Tax Returns Joe Homeowner's Tax Returns
1040 1040
  Schedule A
540 - CA State Return 540 - CA State Return

Analysis of Returns

Joe Renter and Joe Homeowner are both single men with $50,000 of annual income. The tax advantage of homeownership makes Joe Homeowner much better off. Here's how it works:

Joe Renter

  • $50,000 annual salary
  • Joe rents for $1,200 per month
  • Tax deductions = $5,000 Standard Deduction for single person + $3,200 personal exemption
  • Taxable income = $41,800
  • Total income taxes = $9,346 ($7,121 Federal and $2,225 State)
  • Combined tax rate is 18.7%   ($9,346/$50,000)
  • Annual housing expense = $14,400   ($1,200 x 12)
  • Annual housing expense + income tax = $23,746   ($14,400 + $9,346)


Joe Homeowner

  • $50,000 annual salary
  • Joe purchased a $250,000 condo using a $243,500 CalHFA 1st mortgage fixed for 35 years at 5.75% with interest-only monthly payments of $1,123, A CalHFA HiCAP silent 2nd mortgage of $7,500, a CalHFA CHDAP silent 3rd mortgage for $8,000, and a Community Housing Works CASH program silent 4th mortgage of $10,000 to cover closing costs.
  • Total deductions = (Schedule A deductions of $13,483 mortgage interest, $3,125 property taxes, and $1,093 state taxes) + $3,200 personal exemption
  • Taxable income = $29,099
  • Total income taxes = $5,089 ($3,996 Federal and $1,093 State)
  • Combined tax rate = 10.8%   ($5,089 / $50,000)
  • Annual housing expense = $17,208 ($13,483 total annual mortgage payment + $3,125 annual property taxes + $600 annual insurance)
  • Annual housing expense + income tax = $22,297 ($17,208 + $5,089)

Please note that home ownership has saved Joe $1,449 per year ($23,746 - $22,297). Joe can realize that savings by either getting a great big refund at the end of the year if he keeps his tax withholding from his paycheck the same as it was when he was renting. If Joe wants to, he can get that savings right away by adjusting his federal and state income tax withholding from his paycheck. As a homeowner, he now pays $4,257  less in total income taxes ($9,346 - $5,089). He could submit an updated W-4 for federal withholding and a DE-4 for state withholding to his employer. By doing so, Joe could have his take-home pay increased by $354 per month and still have all income taxes covered. As a homeowner, his monthly housing expenses have increased by $234 but his monthly take-home pay has been increased by $354.

As a result, Joe has $120 more per month to spend because he is now a homeowner!

For further information about the immediate tax advantages available new home owners, click here to bring up IRS Publication 530 - Tax Information For First-Time Homebuyers.

I am a licensed tax preparer in the State of California.



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