AMT and mortgage interest deduction

there's a lot of other factors to consider, can't tell you based on what you have posted, build a spreadsheet and run various scenarios but at the end of the day, you should get an apartment that suits the needs of your family that you can afford

The tax deduction just serves to reduce the effective cost to you of borrowing money. Consider the economics of buying a place if your mortgage rate was, say, 2% on an out of pocket basis.

Keep in mind that as we speak, the pols in Washington are discussing capping or eliminating the MID.

Because rates are so low now, the value of the deduction is also low, in nominal terms.

@mucuk: so in essence do I still pay the same taxes or are they reduced because I can deduct mortgage interest?

@mucuk: so in essence do I still pay the same taxes or are they reduced because I can deduct mortgage interest?

No bc re prices increases ad nauseum. You buy based on appreciation. So you have to overpay now to get some other idiot to over pay later.

A perfect bubble machine. Flmaozz

you still pay taxes but would be less since you get the mortgage interest deduction. I think the point that crescent22 is making is that the rates are so low, the interest amt is small and thus the deduction negligible.

Doesn't the front-loading of interest in a standard amortization schedule make it of little concern what the interest rate is, at least for the first several years, as far as deductibility goes?

(Not sure of AMT impact; just addressing low interest rate consideration.)

Thanks Cresecent 22 and Streakeasy!

Your aftertax borrowing cost = (mortgage rate) * (1 - marginal tax rate), assuming you itemize.
Your marginal tax rate could be >40% if you include the state and if you are in the AMT credit phaseout.

If these clowns in DC cap the mortgage deduction , Middle Income will be hit hardest , as that's a very regressive policy

Thanks mucuk. I thought RE mortgage interest is already deducted at the state level i.e. so it benefits home owners as well. Am I right?

Yes, mortgage interest can be deducted for New York state taxes. However, the standard deduction is $15,000 ($7,500 if you are single), so your interest and other deductions (which exclude state income taxes since you are determining state income taxes on this form), must clear $15,000 to make it worthwhile.

Even so, the amount of tax break you can attribute to the mortgage might only be the part that clears $15,000, if any.

You can deduct real estate property tax on the NY form (last I checked) so that helps get you over 15K.

Thanks Mucuk and crescent22. So it means I will benefit both from a state and federal level if I take the bigger mortgage, am I right?

Well, yes, if your total deductions are over $15,000, then you can get the benefit of deducting the interest on the state return. Federal you can deduct the interest from your larger mortgage, but you ought to follow what is going on in Washington - there is a chance they go after one's ability to deduct it on federal returns for future years.

Yeah, also remember that you can't deduct RE Taxes against your AMT liability, which hits most higher income NYS residents.

You are thinking about this in a crazy way. If you get a bigger mortgage, you will have to pay more money to the bank. Some fraction of this (the interest) is deductible, but only to a maximum of about 45% (maybe 50% next year). The remainder, at least 50%, is just money out of your pocket. Basically, you are paying $2 to the bank for every $1 of tax relief you get. That's a really bad deal.

As other people have proposed, the proper way to think about this is as a reduction in the cost of the money you are borrowing. You will never "save money" just by paying mortgage interest; in the best case scenario, you are just reducing the amount of money you have to spend to do so.

@Jordyn, there isn't much of a choice for us as we are growing our family and need a bigger space. The question on AMT and deduction is to help me figure out exactly what the net payment post taxes look like. Moving to the suburbs is out of the question for us for the next few years.

JohnMiller...

My advice, and I assume the same as many others on this board, is to forget about the tax deductible elements of your mortgage and RE Taxes. No one has any clue what is going to happen to the tax code and many of the changes are going to be incredibly specific to each individuals income level, form of income, place of residence, type of residence, and every other possible variation of tax status that you can throw in there.

You are not going to find an answer here. Bottom line, look at your nominal cost as your reality, then enjoy the gravy of the deductions assuming they are still there in the future.