How Property Taxes Can Impact Your Mortgage Payment

How Property Taxes Can Impact Your Mortgage Payment

When buying a home, taxes are one of the expenses that can make a significant difference in your monthly payment. Do you know how much you might pay for property taxes in your state or local area?

When applying for a mortgage, you’ll see one of two acronyms in your paperwork – P&I or PITI – depending on how you’re including your taxes in your mortgage payment.

P&I stands for Principal and Interest, and both are parts of your monthly mortgage payment that go toward paying off the loan you borrow. PITI stands for Principal, Interest, Taxes, and Insurance, and they’re all important factors to calculate when you want to determine exactly what the cost of your new home will be.

TaxRates.org defines property taxes as,

A municipal tax levied by counties, cities, or special tax districts on most types of real estate – including homes, businesses, and parcels of land. The amount of property tax owed depends on the appraised fair market value of the property, as determined by the property tax assessor.

This organization also provides a map showing annual property taxes by state (including the District of Columbia), from lowest to highest, as a percentage of median home value. The top 5 states with the highest median property taxes are New Jersey, New Hampshire, Texas, Nebraska, and Wisconsin. The states with the lowest median property taxes are Louisiana, Hawaii, Alabama, and Delaware, followed by the District of Columbia.

Bottom Line

Depending on where you live, property taxes can have a big impact on your monthly payment. To make sure your estimated taxes will fall within your desired budget, let’s get together today to determine how the neighborhood or area you choose can make a difference in your overall costs when buying a home.

Will the new tax laws take mortgage deductions out of your pocket??

Wondering if the new tax laws will take deductions out of your pocket? Here are a few ways the bill will affect homeowners and the housing market:

MORTGAGE INTEREST DEDUCTION

Prior to this tax reform bill, homeowners could deduct the interest on their mortgage debt, up to $1 million. The new law caps the interest deduction on mortgage debt to $750,000 for new mortgages. Current homeowners are not impacted by this change.

Additionally, homeowners are no longer allowed to deduct the interest they pay on home equity debt. VERY IMPORTANT: the home equity line of credit (HELOC) deduction is NOT grandfathered. So, individuals with a HELOC will lose the deduction.

PROPERTY TAXES

The new tax bill also curbs how much homeowners can deduct for paying property taxes. The previous tax law allowed taxpayers to deduct state and local income or sales tax and also property taxes.

Property, state and local income taxes face a combined $10,000 deduction limit.

CAPITAL GAINS ON HOME SALES

One tax break that remains in place is a rule that lets homeowners shield some of the profits they make selling their home from capital gains taxes.

For individuals, the break applies up to $250,000 in profits on the sale of a principle residence; for married couples, it is up to $500,000.

 

For more information on how the new tax bill might effect your homeowner deductions contact your CPA or tax professional.