2008 Federal Tax Brackets and Mortgage Interest Deduction

Did you know that income taxes are paid in income brackets?  The first $8,024 of income for everyone is paid at 10% tax bracket.  Then $8,025 - $32,550 is paid at 15% tax bracket.  The next level is income earned at $32,551 - $78,850 is taxed at 28% and so on.  The above example is based on a single tax payer. 

A majority of tax payers fall into the 28% tax bracket for all income earned above $32,551 up to $78,850.  Once you add in State taxes which is approx 4% - 7% tax payers are paying a total of 32% -35% in this income range.  This is why having a home and using the mortgage interest, property taxes, and home owners insurance is important to lower your taxable income. 

Example:  If a person makes $75,000 per year as a single income earner they are paying approx 32% -35% income tax on income earned above $32,551 up to the $75,000.  Lets say they own a home and the mortgage is $250,000 at 6.5% interest.  That is a total of $16,250 per year in mortgage interest plus approx another $2,750 per year in property taxes and insurance.  That is a total of $19,000 per year they can potentially subtract off of the top of their income.  So that means that $19,000 per year of the income that they would have paid at 32% -35% in income tax is gone because of the home ownership and the benefits of being able to write it off as a tax deduction.  So that $19,000 in income taxed at say 32% would have been $6,080 that would have went to the IRS but it stays in the consumers pocket because of home ownership and being able to use it as a tax deduction!

Tax Bracket Thresholds (2008) Bracket Single Head of Household Married/Joint Married/Separate 10% 0 0 0 0 15% 8,025 16,050 16,050 8,025 25% 32,550 43,650 65,100 32,550 28% 78,850 112,650 131,450 65,725 33% 164,550 182,400 200,300 100,150 35% 357,700 357,700 357,700 178,850

Note:  I am not an accountant or C.P.A.  I have learned this information from two different C.P.A.'s that I work with on a regular basis.  You are welcome to call them if you need a good C.P.A.  Each situation is different for all people.  I am simply trying to provide an example to help people understand the importance of home ownership. Thank you and I hope this information is helpful to you.

Phil White 480-430-3080