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For co-op owners in Manhattan, do you get any refund back from the tax deductible portion of mortage and maintenance? If so, how much do you pay in mortgage and maintenance and what is the total you get back at tax time?
It's an income tax deduction, so the 'refund' or reduction in whatever your income taxes would otherwise be is the deduction amount * marginal tax bracket (28%,33%,or 35% this year depending on which bracket you are in or 0% if you don't have income or much of it).
It is 26% or 28% if you are in AMT. Note also that if you are in AMT, you cannot deduct property taxes, which is most of the deductible part of your maintenance. You can still deduct the part of your maintenance that is interest on your co-ops underlying mortgage- your co-ops accountant should specify between the two at year-end.
What does that amount to in actual numbers? I'm looking for specific examples, not hypotheticals.
As crescent stated, it's a deduction on your tax return schedule A along with your deduction for taxes, charities, etc. The actual number depends on your particular tax situation. It will reduce your total tax bill but exactly how much depends on your income, deductions and other items that goes into calculating your taxable income.
I can give you some hard numbers from my own experience.
Rental: $2100/month. Income tax refund ~$4500.
Co-op: $2100/month combined mortgage/maintenance. Income tax refund: $14,000. Net monthly housing costs after refund: $1309.
You own a 1,000 square foot apartment, bought for $1,000,000.
You put down 30% and pay 4% on a $700,000 30-yr fixed mortgage.
Maintenance is $2,000 a month of which 40% is tax-deductible.
Your household makes $250,000 of income a year, placing you in the 33% marginal bracket, whether you are single or married. However, at that rate, there is a decent chance you are affected by the alternative minimum tax (AMT), so your marginal rate is actually 28%.
Your mortgage payment is $3342 a month, making your total cash monthly outlay $5,342.
An online amortization table tells you the first year's interest part of the mortgage is about $2300 and adds up to $27,775 in the first year. This amount slightly declines as the years go on as interest is paid on less principal.
Of the $24,000 in yearly maintenance, $9,600 is deductible, but this breaks out at $2,400 interest on co-op mortgage, $7,200 real estate/local taxes.
So you get your Form 1098 (interest paid) from your bank & co-op accountant, go to Schedule A, list $27,775+$2,400=$30,175 in Line 10 and add it to the total of deductions. You also list the $7,200 in property taxes in Line 7 (Taxes You Paid section)
So you go and deduct $37,375 from your taxable income on the main Form 1040, but then you get forced in the AMT sheet to add back the $7,200 real estate taxes into your income because they don't let you deduct such taxes in AMT. You remain allowed to deduct interest paid.
So your $30,175 deduction results in a $30,175 * .28 = $8,449 yearly tax savings.
Three friends have a nice meal together, and the bill is $25
The three friends pay $10 each, which the waiter gives to the Cashier.
The Cashier hands back $5 to the Waiter.
But the Waiter can't split $5 three ways, so he gives the friends one dollar each and keeps 2 dollars as a tip.
They all paid $10 and got $1 back. $10-$1 = $9
There were three of them 3 X $9 = $27
If they paid $27 and the waiter kept $2: $27 $2=$29
Where did the other dollar go? $30 - $1 = $29
hmm maybe the 2 is included in the 27, you tricky rabbit!
25 meal 2 tip = 27
Or, the cashier stole it!
Meal is $25.00
Tip is $2.00
Total = $27.00 or $9.00 per person
Each person gets $1.00 back. Nothing is missing.
I hope the tax analysis is not as flawed as the famous old question about the missing dollar, which isn't missing at all; at the end of the transaction, which began with $30 in the diners' hands plus $0 each for the waiter and cashier, the diners have $3 in change, the waiter has a $2 tip, and the cashier has the $25 that the food cost, which adds up to the $30 at the beginning.
general question on AMT.
If you are in AMT, can you deduct property taxes on an investment property (no LLC, no trust etc)
Yes, because you would list it on Schedule C with your income from that property, net it out and stick the net onto the main form. It would not be on Schedule A where it then would get added back on the AMT forms.
Don't understand Matt's figures. Even if the entire 2.1k per month was deductible, wouldn't his marginal rate would need to be 40% to generate the extra 10k in tax refund?
Matts lost his figures long ago.
Thanks @Crescent22, that helps explain it although it's a little beyond me - I barely passed my accounting courses in College. I do get the basic idea though, that it depends on the tax bracket and how much of your output is actually tax deductible. And of course other things are deductible which could change the number ultimately.
@NYCMatt - wow that's a huge refund!
Does anyone else care to share a real life calculation or total refund for the mortgage and maintenance deductions?
I got back about 30% of evrything I paid for mortgage interest and my share of the coop maintenance.
NYCmod -- your focus on the "refund" is a bit odd. That's purely a function of how much the IRS withheld during the year and that's within your control via your W4.
Your tax REDUCTION from mortgage interest (yours and the buildings) and property taxes is basically that amount times your marginal rate.
@marco_m - 30% is huge!