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Mortgage Tax Savings Calculator
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Interest paid on a mortgage is tax deductible if you itemize on your tax return.
So are points that are paid to lower your interest rate. Use this calculator to
determine how much you could save in income taxes.
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Definitions
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- Mortgage amount
- Original or expected balance for your mortgage. Taxpayers
can deduct the interest paid on first and second mortgages up to $1,000,000 in mortgage
debt (the limit is $500,000 if married and filing separately). Any interest paid
on first or second mortgages over this amount is not tax deductible. Home equity
loans are limited to $100,000 or the amount of equity you have in your home. Our
calculator limits your interest deduction to the interest payment that would be
paid on a $1,000,000 mortgage.
- Interest rate
- Annual interest rate for this mortgage.
- Interest rate after taxes
- Annual effective interest rate, after taxes
are taken into account. Please note that in addition to the $1,000,000 mortgage
debt limit; this calculator assumes that your itemized deductions will exceed the
standard deduction for your income tax filing status. If your itemized deductions
don't exceed your standard deduction, the benefit of deducting the interest on your
home will be reduced or eliminated. For 2011, the standard deductions are $11,600
for married couples filing jointly, $5,800 for married couples filing separately
and singles, and $8,500 for heads of household. You should also be aware that the
total tax savings may be less for higher incomes that have their allowable itemized
deductions phased out.
- Term in years
- The number of years over which you will repay this loan.
The most common mortgage terms are 15 years and 30 years.
- Monthly payment
- Monthly principal and interest payment (PI).
- Federal tax rate:
- The marginal Federal tax rate you expect to pay. Use
the table below to assist you in estimating your 2012 tax rate.
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10%
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$0 - 17,400
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$0 - 8,700
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$0 - $12,400
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$0 - 8,700
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15%
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$17,400 - 70,700
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$8,700 - 35,350
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$12,400 - 47,350
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$8,700 - 35,350
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25%
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$70,700 - 142,700
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$35,350 - 85,650
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$47,350 - 122,300
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$35,350 - 71,350
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28%
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$142,700 - 217,450
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$85,650 - 178,650
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$122,300 - 198,050
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$71,350 - 108,725
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33%
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$217,450 - 388,350
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$178,650 - 388,350
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$198,050 - 388,350
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$108,725 - 194,175
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35%
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over $388,350
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over $388,350
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over $388,350
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over $194,175
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Source: Revenue Procedure 2011-52 http://www.irs.gov
- State tax rate:
- The marginal state tax rate you expect to pay.
- Annual Percentage Rate (APR)
- A standard calculation used by lenders. It
is designed to help borrowers compare different loan options. For example, a loan
with a lower stated interest rate may be a bad value if its fees are too high. Likewise,
a loan with a higher stated rate with very low fees could be an exceptional value.
APR calculations incorporate these fees into a single rate. You can then compare
loans with different fees, rates or different terms.
- APR after taxes
- Annual percentage rate after taxes are taken into account.
Unlike your after-tax interest rate, the APR after taxes takes closing costs into
account.
- Loan origination percent
- The percent of your loan charged as a loan origination
fee. For example, a 1% fee on a $120,000 loan would cost $1,200.
- Discount points
- Total number of "points" purchased to reduce your mortgage's
interest rate. Each "point" costs 1% of your loan amount. As long as the points
paid are not a broker's commission, they are considered tax deductible in the year
that they were paid.
- Other fees
- Any other fees that should be included in the APR calculation.
These fees can vary by lender, but at a minimum usually includes prepaid interest.
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Information and interactive calculators are made available
to you as self-help tools for your independent use and are not intended to provide
investment advice. We can not and do not guarantee their applicability or accuracy
in regards to your individual circumstances. All examples are hypothetical and are
for illustrative purposes. We encourage you to seek personalized advice from qualified
professionals regarding all personal finance issues.
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