Rent vs Buy Tax Benefits Calculator 2026 β SALT Cap & Mortgage Interest
Compare the true tax savings of buying vs renting a home. Includes mortgage interest deduction, SALT cap ($40,000 OBBBA), and month-by-month cost comparison.
$
Your gross annual income (for bracket calculation) $
$
%
Down payment: β %
30-year fixed rate %
US average ~1.1% of home value $
Charitable donations, state income tax, etc. $
Used in SALT cap calculation ($40K cap) $0
Annual Tax Savings (Buying)
$0
Monthly Mortgage (P&I)
$0
True Monthly Cost (Own)
$0
True Monthly Cost (Rent)
Tax Deduction Analysis
How the Rent vs Buy Tax Analysis Works
The tax benefit of buying a home comes from mortgage interest and property tax deductions β but only if your total itemized deductions exceed the standard deduction. Many buyers are surprised to learn their actual tax savings are much smaller than the raw deduction amounts suggest.
The Formula
Loan Amount = Home Price Γ (1 β Down Payment%)
Monthly P&I = Loan Γ [Rate/12 Γ (1+Rate/12)^360] Γ· [(1+Rate/12)^360 β 1]
Year 1 Mortgage Interest β Loan Γ Annual Rate (close approximation)
SALT = min(Property Tax + State Income Tax, $40,000)
Total Itemized = Mortgage Interest + SALT + Other Deductions
Excess over Standard = max(0, Total Itemized β Standard Deduction)
Annual Tax Savings = Excess Γ Marginal Tax Rate
True Monthly Cost (Own) = Mortgage + Property Tax/12 β Tax Savings/12
Monthly P&I = Loan Γ [Rate/12 Γ (1+Rate/12)^360] Γ· [(1+Rate/12)^360 β 1]
Year 1 Mortgage Interest β Loan Γ Annual Rate (close approximation)
SALT = min(Property Tax + State Income Tax, $40,000)
Total Itemized = Mortgage Interest + SALT + Other Deductions
Excess over Standard = max(0, Total Itemized β Standard Deduction)
Annual Tax Savings = Excess Γ Marginal Tax Rate
True Monthly Cost (Own) = Mortgage + Property Tax/12 β Tax Savings/12
Example
Pat, single, $120K income, $400K home, 20% down, 7% rate, 1.1% property tax:
Loan: $320K | Monthly P&I: $2,129 | Year 1 interest: ~$22,253 | Property tax: $4,400
SALT (capped): $10,400 | Total itemized: $37,653 | Standard: $15,000
Excess: $22,653 | Marginal rate: 22% | Annual tax savings: $4,984
True monthly cost: $2,129 + $367 β $415 = $2,081 vs $2,500 rent
Loan: $320K | Monthly P&I: $2,129 | Year 1 interest: ~$22,253 | Property tax: $4,400
SALT (capped): $10,400 | Total itemized: $37,653 | Standard: $15,000
Excess: $22,653 | Marginal rate: 22% | Annual tax savings: $4,984
True monthly cost: $2,129 + $367 β $415 = $2,081 vs $2,500 rent
Extended
5-Year Rent vs Buy Projection
Year-by-year after-tax costs, equity building, and the exact breakeven point
Year-by-year comparison showing how rent increases (3%/yr assumed), mortgage interest decreases, equity builds, and when buying becomes cheaper than renting after taxes.
| Year | Monthly Rent | Mortgage Interest | Tax Savings | True Cost (Own) | True Cost (Rent) | Equity Built | Own Advantage |
|---|
Cumulative 5-Year Totals
Frequently Asked Questions
How much do I save in taxes by buying a home?
Tax savings from homeownership depend on whether your total itemized deductions exceed the standard deduction. In 2026, the standard deduction is $16,100 (single) or $32,200 (married filing jointly). Your tax savings equal only the portion of itemized deductions that exceeds the standard deduction, multiplied by your marginal tax rate. For many middle-income buyers, the actual federal tax savings are modest or zero if their itemized deductions do not beat the standard deduction.
What is the SALT cap and how does it affect homeowners?
The State and Local Tax (SALT) deduction cap limits combined deductions for property taxes, state income taxes, and state sales taxes. Under the One Big Beautiful Bill Act (OBBBA) passed in 2026, the SALT cap increased to $40,000 for 2026 (up from $10,000) with an income phaseout starting at $500,000 AGI. This change primarily benefits homeowners in high-tax states like California, New York, and New Jersey.
Is the mortgage interest deduction still worth it?
The mortgage interest deduction applies to loans up to $750,000 (for homes purchased after December 15, 2017). In the first year of a 30-year mortgage, most of your payment is interest, making the deduction most valuable in early years. However, since the 2017 tax reform nearly doubled the standard deduction, most taxpayers β especially those in low-property-tax states β cannot beat the standard deduction, so they get no additional benefit from mortgage interest.
What is the true monthly cost comparison between renting and buying?
True cost of owning includes: monthly mortgage payment (P&I), property taxes, homeowners insurance (~0.5-1% of home value), HOA fees, and maintenance (budget 1-2% of home value annually). Subtract the monthly tax savings from deductions to get the true after-tax cost. Compare this to rent. Many first-time buyers underestimate maintenance and insurance costs, making buying appear cheaper than it really is initially.
When does buying a home become cheaper than renting after taxes?
The breakeven point depends on home appreciation, rent increases, your down payment, and tax savings. A rule of thumb is 3-7 years in most markets. Our 5-Year Projection in the Extended section shows year-by-year after-tax costs accounting for: declining mortgage interest deduction over time (amortization), equity building, rent increases (assumed 3%/year), and cumulative tax savings. The breakeven occurs when cumulative cost of owning equals cumulative cost of renting.