To help preserve the American dream of home ownership, Congress has established favorable tax treatment for home owners. No other country makes owning a home as affordable as we do in America by our Pro-Housing tax deductions.
A typical payment is made up of four components: principle, interest, taxes and insurance (PITI). Of these, two are deductible. All of your taxes and interest, which make up the largest share of your payment are fully deductible. For example, on a $1000.00 a month payment, the four components may equal:
So $935.00 per month or $11,220 per year is fully deductible. In 2001 most tax payers in Colorado paid a combined tax of 36% (federal and state). If on a $1000 monthly mortgage payment, $935 is deductible at a 36% tax savings, $336 will be saved in taxes per month. When considering the tax consequences, your effective monthly payment is only $664 ($1000-$336) or 4660 at the 36% income tax level. Uncle Sam is actually helping you make your monthly mortgage payment each month!