Rent vs Buy: What Is the Tax Break Actually Worth?

Most rent-vs-buy calculators assume every homeowner writes off their mortgage interest and property tax. Since the standard deduction was nearly doubled, most do not. Enter a home price and a state to see the real number — including when it is zero.

Your estimated annual federal tax benefit from owning$4,958Itemizing beats the standard deduction by $22,537, worth 22% of that at your federal rate — about $413/month.

Home Stats, Income & State

Home Price

State

Filing Status

Down Payment

Interest Rate

Loan Term

yrs

Annual Salary

Comparable Rent

/mo

Salary is estimated from the home price — leave it blank to use the typical estimate of $189,923.

Rent is estimated from a 27:1 price-to-rent ratio in California. Edit it to match your actual market.

Note: State and local taxes vary enormously, which is why the same home price can produce a very different tax benefit depending on where it sits. Effective property tax rates alone range from 0.71% in California to 2.23% in New Jersey, and top state income tax rates run from 0% in Texas, Florida and Washington to 12% in California. Switch the State field above to see how much that shifts your numbers.

What income does a $700,000 home imply?

Lenders size a mortgage against your gross income. Working backward from the $4,432/month payment gives the salary range a buyer at this price point typically earns — and salary drives your state income tax, which drives the SALT deduction.

Stretched36% of income

$147,718

State income tax: $6,822

Tax benefit: $3,705/yr

Typical28% of income

$189,923

State income tax: $10,748

Tax benefit: $4,958/yr

Comfortable22% of income

$241,720

State income tax: $15,565

Tax benefit: $6,018/yr

How the 2026 tax benefit is calculated

Line	Amount
Year-one mortgage interest On a $560,000 loan at 7%	$39,020
Property tax 0.71% of home value in California	$4,970
State income tax On a $189,923 salary	$10,748
SALT deduction (capped at $40,400) Under the cap	$15,718
Total itemized deductions Interest + SALT	$54,737
Standard deduction Married filing jointly — the bar itemizing must clear	$32,200
Extra deduction from owning Only this excess produces any tax savings	$22,537
Annual tax benefit Federal tax on $22,537 less of taxable income (about 22%)	$4,958

Monthly cost, side by side

Buy

Principal & interest	$3,726
Property tax	$414
Homeowners insurance	$292
Maintenance (est. 1%/yr)	$583
Federal tax benefit	-$413
Net monthly cost	$4,602

Rent

Rent	$2,160
Renters insurance	$15
Federal tax benefit	-$0
Net monthly cost	$2,175

Buying costs $2,426 more per month than renting.This compares cash out the door only. It does not credit the principal portion of your payment (about $459/month in year one) which builds equity, nor does it charge renting for the return your down payment could have earned invested elsewhere.

Gross monthly cost before the tax benefit. Buying nets out to $4,602/month once the $413/month federal benefit is applied.

Why most homeowners get no tax break at all

The mortgage interest deduction only helps if your itemized deductions exceed the standard deduction¹. Before 2018, roughly a third of filers itemized. After the standard deduction was nearly doubled, that fell to about one in ten. If your mortgage interest plus capped SALT comes to less than $32,200, you take the standard deduction and your home produces exactly zero federal tax savings. Most rent-vs-buy calculators quietly assume the writeoff always applies. This one checks. Filing status matters more than almost any other input here: the single bar is $16,100 against $32,200 for a couple filing jointly, so single filers clear it — and get a real deduction — far more often on the same home.

What the SALT cap does to high-tax states

State and local taxes — income tax plus property tax — are deductible only up to the SALT cap², currently $40,400 for 2026. This is why the same home price produces wildly different answers depending on where it sits. A buyer in New Jersey or California can easily generate $60,000 in combined state income and property tax and deduct only $40,400 of it. A buyer in Texas or Florida pays no state income tax at all, so their SALT is property tax alone — often well under the cap, leaving room that the mortgage interest deduction can actually use. The cap was raised from $10,000 to $40,000 for 2025 and rises 1% a year through 2029, but under current law it reverts to $10,000 in 2030.

Renting is not throwing money away

The common argument for buying is that rent builds no equity. That is true, but it compares the wrong numbers. Only the principal portion of a mortgage payment builds equity — interest, property tax, insurance, PMI, and maintenance are all pure cost, and in the early years of a 30-year loan they consume the overwhelming majority of each payment. The honest comparison is rent against the non-equity portion of ownership, plus the return your down payment would have earned if invested instead. On a $700,000 home with 20% down, that down payment is $140,000 of capital doing nothing but sitting in the house.

What this page assumes

Figures are estimates for planning, not tax advice. Specifically: married filing separately and head of household are not modeled; state income tax is computed on gross salary without state-level standard deductions, exemptions, or credits; only year-one mortgage interest is modeled, and the benefit shrinks every year after as the loan amortizes; property tax and price-to-rent ratios are statewide medians that vary enormously by county and neighborhood; and the high-income SALT phase-down above $500,000 of modified AGI is not modeled. For California: Excludes the 1% mental health services surcharge on income over $1M. Confirm anything consequential with a tax professional.