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Deductible Mortgage Interest |
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MS Lank, Mortgage interest as an income tax deduction is a fallacy. Only if interest and other allowed deductions exceeds the standard deduction of $6,250 for a single and $11,000 for a married filer is the deduction of value. The value of the deduction over standard is then only worth, for most taxpayers, 29 percent or less of the deduction. It makes little sense to spend $1,000 to "save" $290. It's like saying, "Keep the change," when paying for a Starbuck's $2.90 cup of coffee with a $10 bill.
Mortgage interest payments are made with tax-paid dollars. Any portion of a paid-up mortgage is like having tax-free income equal to the mortgage interest rate on the paid-up portion |
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I’ll agree with you, up to a point.
Most people take out mortgage loans because they can’t afford to buy their homes otherwise. The fact that the interest is tax-deductible does take some of the sting out of making payments. And by the time most people total up property taxes and a few other deductible items, they are beyond the limits of the standard deduction.
Otherwise, yes, placing a mortgage loan simply as a financial planning move is indeed foolish for most people. It might figure in the overall strategy of a sophisticated investor, under certain circumstances. But you’re right: too many people write to me that they’re worried because they’ve paid off their mortgage and now they’ve “lost their tax deduction.” Yes, I point out, but they’ve also lost their monthly payments, which is a whole lot better. |
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Edith
Originally published on November 6, 2006 |
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