The first item to understand is that even if you have no deductions (like most renters) the federal tax code, as of this chapter writing (2022), gives you $12,000 in deductions from your income. Let's see how this works and affects your income and income taxes:
Renting
Let's assume you are renting and have no tax deductions. You make $80,000 per year and you are in a 20% tax bracket. You would get the standard $12,000 deduction from income so that you would end up paying taxes on $68,000 of income. This means you would be paying $13,600 in income taxes per year thus netting you $66,400 per year or $5,533.33 per month. Here is how that is calculated: • $80,000 - $12,000 (standard deduction) = $68,000 income. • $68,000 (taxable income) x 20% = $13,600 taxes • $80,000 - $13,600 taxes = $66,400 n $66,400 net income per year • $66,400 / 12 = $5,533.33 p $5,533.33 per month net income
Vs. Ownership
If you purchase a home and pay $10,000,00 in interest per year and pay $7,000 in real estate taxes per year, you may be entitled to deduct $17,000.00 from your income. This reduction results in taxable income of not $80,000.00 but $63,000.00. If you are in the same 20% tax bracket you will now pay:
• $80,000 - tax deductions of $17,000 = $63,000 taxable
118
Powered by FlippingBook