Amazing, but true. Buying a home adds to your "take home" income - possibly
by several hundred dollars or more - simply by increasing the number of federal
income tax withholding allowances on Form W-4.
- Here's how it works.
New home buyers generally find that their
pre-purchase withholding rate will result in overpayment of taxes, if they don't
adjust their withholding allowances. That's because they haven't reduced their
withholding to compensate for reduced taxes caused by deductions for mortgage
interest and property taxes - items that are currently deductible at income tax
- See for yourself.
A first-year homeowner who paid $9,000 in interest
and real estate taxes, and who itemized deductions in a 28% tax bracket, would
have overwithheld and would get a large refund next year. In this case, $2,520.
- Enjoy your bigger paycheck.
Increasing the number of withholding
allowances, on the other hand, reduces the amount withheld to pay future taxes -
which puts your tax refund in your paycheck today, not at the end of the year.
With the additional cash in your hands instead of in the government's, you'll
have more cash to meet payments and live on.
- Be sure to check the tax rules.
The rules for claiming allowances
are simple. Working couples filing jointly figure withholding allowances on
combined wage income and may allocate them between employers. On separate
returns, the allowances must be figured separately. And if you work for two or
more employers at the same time, you may claim withholding allowances from only
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