# How Much Money Will I Save in Taxes If I Buy a House?

Home ownership has long been rewarded with various tax deductions under the Internal Revenue Code, including deductions for mortgage interest, real estate taxes and even mortgage insurance costs. However, especially with changes in the tax code under the Tax Cuts and Jobs Act starting in the 2018 tax year, the savings might not be as big as you would expect. Knowing how to properly estimate your tax savings from purchasing a home helps you know how much you can afford to spend on your monthly housing costs.

#### TL;DR (Too Long; Didn't Read)

The amount of money you will save in taxes by buying a house will largely depend on the specific details of your mortgage, among other parameters. Mortgage interest is one of the more popular deductions associated with home ownership.

## Calculating Tax Savings from Your Home

To estimate the tax savings from purchasing a home, you need to know the amount of costs you will be able to deduct on your taxes and your marginal tax rate. Your marginal tax rate is the tax rate that applies to your last dollar of taxable income. To calculate your savings, multiply your home ownership deductions by your marginal tax rate.

For example, say that you pay \$5,000 in mortgage interest and \$4,000 in real estate taxes. Your home ownership entitles you to a potential \$9,000 more in deductions than you would have claimed had you not bought a house. If you fall in the 32 percent tax bracket, multiply \$9,000 by 0.32 to find that home ownership saves you \$2,880. If you are in the 12 percent tax bracket, your savings would only be \$1,080.

## Itemize to Claim Deductions

Certain limits on home-related deductions could mean your home purchase might not save you any money on your taxes. First, to claim the mortgage interest deduction and property tax deductions, you must itemize your deductions. When you itemize, you forego the standard deduction. For the 2018 tax year, the standard deduction is \$24,000 for couples and \$12,000 for singles. If the total of your itemized deductions, which also includes deductions for charitable contributions and medical expenses, doesn’t exceed your standard deduction, then your home purchase won’t even show up on your taxes.

Even if you are able to itemize, your home ownership deductions only reduce your taxes to the extent they exceed what your standard deduction would have allowed. For example, say you’re single and have \$10,000 in itemized deductions before your home-related deductions. If you have \$9,000 in home-related deductions, you’re really only increasing your total deductions by \$7,000 because without your home, you would have claimed the \$12,000 standard deduction.

## Limitations on Deductions

Starting in the 2018 tax year, your deduction for state and local taxes, including property taxes, is capped at \$10,000. For example, say you pay \$10,000 or more in state and local income taxes. Because you’re already at the deduction limit for state and local taxes, buying a house and paying real estate taxes on it won’t reduce your taxes any further.

In addition, the amount of mortgage interest you can deduct is limited. For mortgages taken out prior to December 17, 2017, you can deduct the interest on the first \$1,000,000 of mortgage debt. For mortgages taken out after that date for the tax years 2018 through 2025, you’re limited to deducting the interest on the first \$750,000 of mortgage debt.