Military Members in a HIGHER BAH area have added benefits. So you read this article about owning a home and how BAH affects your taxes if you itemize.
For military members BAH is tax-free and depends on your area. In high-cost areas you receive more BAH, in low-cost areas you receive less. Makes sense, right? If you live in a high-cost area and use your tax-free BAH towards a mortgage instead of rent (with all variables staying the same, maintenance etc.) then buying will have an added bonus!
Notes: How BAH Affects Your Taxes
The following assumptions are made:
- Entire BAH allowance is used for the mortgage
- VA loan is use (no down payment or pmi)
- Property tax is 1.3% of the Sales Price
- Insurance 0.3%
- Overall Tax Rate 25%
An O3 with dependents (married) makes $3,234 BAH in San Diego in 2015 (found here).
You could buy approximately a 525k home and your payment would be $3,161 a month.
Mortgage Interest- $20,212.56 (for the year)
Property Tax – $8,401 (for the year)
This is saying that if you have no more expenses than a rental then you are able to write off $28,612.56 off your taxes plus any other deductions the IRS allows.
Let’s assume you are at 25% tax rate. So this “savings” is worth $7,153.14 in tax savings!
That is for doing nothing more than BUYING rather than RENTING!!
This is a tax “deduction” so it come off how much you earn and your “category”. So if it brings you below a large tax threshold or allows you to be able to partake in credits that you otherwise wouldn’t be eligible for it would have a lot more affect than the above illustrates.
In the same sense if you only have a 10-12% tax rate than the tax savings is much less.
These numbers are just food for thought. There are PLENTY of other variables involved.
The point is buying a house – ESPECIALLY in a HIGH cost of living area could have a HUGE effect on your taxes!
*Apologies from the Author- There was a mistake made in the city. Oakland was used not San Diego.
What is your experience?2