When renters are deciding whether they can purchase a home in Walnut Creek, CA and surrounding areas in the East Bay, they are told of the great tax benefits from home ownership.
While it's true that home ownership does generate income tax write-offs, the general formula provided to renters to calculate the income tax benefits is wrong.
Don't use this formula: mortgage payment + monthly property taxes x effective tax rate = income tax savings from home ownership.
The formula fails to account for the fact that some standard deductions are replaced by the itemized home deductions so the formula overstates the income tax savings, in some cases significantly.
I invite you to request the Buy vs Rent Calculator that has been specifically programmed for California residents, includes state and federal taxes and considers additional important factors such as filing status (married, head of household or unmarried), number of dependents and tax deductible 401(k) savings.
This Buy vs Rent Calculator generates a side-by-side, easy to understand Rent vs Buy comparison. Don't make important financial decisions based on inaccurate information. Request the Buy vs Rent Calculator now.
Wendy Cutrufelli
Broker Associate
925.917.1135
The positions on this site are my own and don't necessarily represent Alain Pinel Realtors' positions, strategies or opinions.
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These are great tools to illustrate to renters that owning a home, in many scenarios, is actually cheaper than renting, even in a flat or declining market.
Hi David,
Thanks for your comment! Many areas of the East Bay in northern California are high-cost areas so owning isn't always cheaper than renting. That fact makes it even MORE important to get an accurate representation of the income tax savings that can help offset a higher monthly payment.
This is a great rent vs. buy calculator. The NYTimes has a nice graphical one http://www.nytimes.com/interactive/business/buy-rent-calculator.html
And the Official Site of the National Association of REALTORS® also has one.
http://www.realtor.com/home-finance/financial-calculators/rent-vs-buy-calculator.aspx
Hi Daniel,
The rent vs buy calculator on the NAR site has a lot of great variables, but it - like most that are programmed for a national audience - don't include some important factors such as filing status and number of dependents so they don't calculate the standard deductions that are replaced with itemized deductions. It causes the results to be overstated. Additionally, the income range for each tax bracket at both the state and federal level aren't calculated. Doesn't make a significant difference in most cases but a home purchase could actually move some buyers from a higher to a lower income tax bracket.