Wednesday, October 26, 2011

Home Ownership and Taxes

You are probably aware that the interest you pay on your mortgage and the property taxes you pay are both deductible.

If you go from being a renter to a homeowner, you should expect to pay lower taxes or receive a larger refund come April.  But how about boosting your monthly take-home pay to help your monthly budget?

By filing a revised W-4 with increased allowances, you will increase your net pay on each paycheck.  You could wait until you file your tax returns in April, but you are essentially giving the government a free loan (well, the government certainly needs it).

Each allowance on your W-4 is worth $3,700.  If you add your annual mortgage interest and property taxes, then divide by $3,700, you should get the number of allowances to file for (relating to your home; you may already have other allowances).  You can then use a paycheck calculator to estimate what your new net paycheck will look like.

Of course, consult a tax professional before you take the advice of a blogger.  Your individual circumstances will differ.

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