Might be the best time to buy a house
about the estimated tax brackets for 2007 was released and this got me doing a little bit of checking.
I keep a running estimate of our taxes in Microsoft Money and we’ve been sitting in the 15%, but with the release of the 2007 estimates, it got me thinking… how close are we to peaking out our bracket?
I had to make a few adjustments to Money’s figures, since it was still figuring taxes with my wife going to school this semester (though she’s done with school now) and it wasn’t counting my 401(k) contributions (I track my 401(k) account within Money, so it saw contributions as an account transfer).
After all that was said and done, we had an AGI of around $57,000. The peak of the tax bracket for 2006 was $61,300, and in 2007, it will be $63,700. This year, we were only about $4,000 from going over, which is cutting it kind of close. And although the bracket is going up $2,400, I think next year, we most certainly will be bumped up to the higher tax bracket. Couple of reasons:
- I just recently got a raise, and it is late in the year, so it doesn’t affect us as much this year, but next year, it will be a few extra thousand.
- My wife is no longer going to school, so we won’t have any tuition adjustments next year.
- My wife is now working full time, where as before, she was only working part time. So next year, her income will be almost double.
- This year, my wife was not working for 2 months, so that is two months of no income from her keeping out current year’s income down. Had she been working for those two months, we would have been cutting it even closer to peaking this year.
So the end of this year might end up being a good time to buy a house, because it could help keep us within the lower tax bracket. If we stayed where we were living now, focusing on paying off our debts before we take the plunge for a house, we would most certainly go into the higher tax bracket, and could easily end up getting upwards of $700 less per month. So we would wait so we could pay off our debt, but then end up having less money available to pay the debt. Sucks, huh?
On the flip side though, although we may be stretched to buy a house, and may end up financially with the same amount of money per month (renting + higher taxes vs. mortgage + housing expenses could end up being roughly the same), we will at least have a house at that point and no longer be in an apartment, and be gaining equity verus writing a rent check and never seeing it again.
As I had mentioned earlier, how we were waiting for the “perfect time” to buy a house, where housing prices, mortgage rates, and debt all being low, this year might actually be the perfect time. Although debt won’t be gone, it will be lower. And prices and rates have been going down. But the main factor that might sway it is the taxes. Our previous criteria was all looking at factors of the now. But taxes is a factor of the future. And buying the house could be better for us looking ahead, and help us the most after the purchase instead of at the time of the purchase.
