Income tax, buying vs. renting, and education credits

[Runtita]

I am in a dilemma- to rent or to buy a house?

I will be a full-time student in the fall. Previously, I have been working full-time but that will end June 30. My husband will continue to work full-time. We have 2 young children- one is in daycare.

There are so many factors to consider...

1. The tax advantages of buying- Will it really benefit us to buy a house? We currently own a house in another state that we rent out, so we are getting a business benefit from that by taking a loss every year.

2. Would we even be able to itemize? Interest on our house payments won't come close to the standard deduction for married filing jointly. And we don't usually have enough other deductions- unless the business writeoff mentioned earlier would apply, but I think our accountant lists this in another category.

3. Is tuition paid with loans deductible (up to the $3000 deduction limit)? How would that factor into potential tax savings? Or how would education credits impact deductions?

4. Buying a cheap, small house to live in for 4 years vs. renting a cheap, small house for 4 years and then buying the house we really want

We are meeting with the accountant next month to discuss this along with doing our taxes, but I'd like other opinions.

Thanks!

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[mpp]

Your accountant will likely have the best advice. They would should be able to compute the best way to file, itemize or take the standard deduction depending on the house and type of loan. Buying a house in your situation is probably more a lifestyle issue...do you want to live in your own place? Then do it. But if you don't really care, you may be right that financially (when you take into account minor repairs plus time spen mowing lawns and raking leaves, etc.) renting can sometimes be a better option. But be sure not to neglect possible (and it certainly is no guarantee) appreciation of the real estate. Best of luck...

 

[edmadison]

Don't forget when making the computation that you will be able to deduct your property taxes on the house you own. This will probably be several thousand dollars. Also, if you are itemizing, you can deduct your state income tax on your federal return.

Ed

 

[docuw]

What did you find out about the education credit if school is paid for with student Loans?

 

[mpp]

See your other post, but yes, school tuition/fees paid with loans are still eligible for the lifetime learning credit or tuition & fees deduction.