Renting vs. Buying Tax Comparison

To get an idea of exactly how much you would save buying a home versus renting, let’s assume that a renter and homeowner both make $60,000 a year.
The renter pays $1,000 per month rent and gets no tax breaks. The homeowner has a $140,000 mortgage at 7 percent, with a $1,100 per month payment. Real estate taxes are $1,500, and mortgage interest paid for the year totals $9,756.
To keep it simple, assume that both renter and homeowner are in the 25 percent tax bracket. The renter will owe .25 _ $60,000 or $15,000 in taxes to Uncle Sam.
The homeowner will be able to deduct the $9,756 interest plus the $1,500 in property taxes paid, or $11,256. Subtracting that from the $60,000 income leaves $48,744. Multiplying that by the .25 percent tax bracket leaves a tax bill of $12,186. Dividing that by 12 months translates into a savings of $235 a month.
The homeowner’s after-tax monthly house payment ends up at $865. And after 360 payments, the homeowner gets to keep the house, which should appreciate significantly.
The renter will have a stack of rent receipts and the uncertainty of rents going up whenever the economic winds shift. Your tax situation may vary, but a useful rule-of-thumb is that you’ll save about 20 percent of your monthly mortgage payment in taxes. Talk to a tax professional to see exactly what you’ll save and what mortgage payment option will work best for you.