I'm looking into a BMR resale in SOMA. But I don't know anything about how much tax write off I can get on mortgage interest if the sale

Asked by Deepcleaning, Mountain View, CA Tue Mar 23, 2010

price is 330,000. and we get a 30 year loan at 4.5 interest rate, with monthly payment of 1300 something.

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Jed Lane, Agent, Petaluma, CA
Tue Mar 23, 2010
The reason that agents will respond to ask a tax advisor is that we are licensed by the State to act as fiduciaries in real estate transactions. We are not licensed to practice law or as Certified Public Accountants. If Mr. DeepCleaning acts on the advice below and is harmed he can sue the agent and the broker and be successful.
I just didn't want anyone to think we avoid these questions because of some hidden agenda.
As homeowners we are allowed to deduct all the interest we pay on the mortgage for our primary residence. This reduces our income and can drop us into a lower category, so it really is a specific case by case benefit. You can ask your lender how much interest you will be paying over the 12 months and then reduce your income by that amount to see what the effect will be on your income taxes.
We also can deduct from your income the property tax paid. The tax is a percentage of the price the house sold for. It is a bit less that 1.2% in SF now. I usually recommend using 1.2% to avoid surprises. Also you can file for the "homeowners exemption" which will reduce the assessed value (sale price) of the home by $7,000.
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Jason Chapin, , San Francisco, CA
Tue Mar 23, 2010
Most agents will respond suggesting you speak with your tax advisor/preparer to sort this type of thing out. Your specific situation depends on how much you earn and how you file, et cetera. However, my general understanding is that you should be eligible to write off all of the mortgage interest and real estate taxes. Your tax basis will be roughly 1.163% of the purchase price. Your mortgage interest changes every year as you amortize or pay down your loan balance.

For the purposes of a gross estimation, I'd figure a tax benefit of somewhere near $4,380 per year. This assumes a top tax bracket of 25% and a 20% down payment on the scenario you just provided.

I will say, though, that 4.5% seems like a very low interest rate for a BMR property. I represent many buyers and sellers. The MOH has strict guidelines regarding financing and allow ONLY fixed rate loans. I haven't seen 4.5% available without a buy-down.

However, this should get you started. Once you buy your home, work with your HR department to complete a new W4. This will adjust your tax withholding to accomodate the new write off.

Good luck to you!

Jason Chapin
McGuire Real Estate
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Grace Hanamo…, Agent, Cupertino, CA
Tue Mar 23, 2010
Hello Deepcleaning and thanks for your question.

The amount of the interest that will be deductible against your taxes is determined by your gross income and filing status. Interest income is deducted on one's Schedule A, and is subject to some reductions based on income. All of the interest that is paid during the year, however, is reported as a deductible expense, but there is a difference between what is deductible and what is "allowable" and that's why you will need to talk with a qualified tax professional to determine how this applies to your specific income and financial situation.

To best determine the amount of interest that will be charged to you each month or for the first year, speak directly with the loan officer handling your mortgage. He or she will provide you with a Good Faith Estimate and Truth In Lending Statement that details the amount of interest, the monthly payment and the amount of money going each year to interest on the loan.

Good luck!

Grace Morioka, SRES
Area Pro Realty
San Jose, CA
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