The situation cries out for reliable advice from a tax expert, since every situation is different. See this MarketWatch article, for example: Should you pay off your mortgage? - MarketWatch
I must second John's advice here. Every year I put in all of my applicable deductions into TurboTax and every year it tells me I'm better off with the standard deduction. Meanwhile, I have a co-worker who flat-out panicked when he paid off his mortgage and immediately ran out and bought a retirement home (as in, the home he intends to retire to) because his tax guy basically told him that was the only way to avoid impending doom. So, yeah, get a tax expert.
I'm reminded of a story I once heard from an accountant I was once acquainted with. One time, this accountant told me that a potential client of his once came into his office and proclaimed, "I need some tax deductions!" The accountant told him, "You don't need tax deductions; you need income!"
It is a myth. Paying off the mortgage as soon as possible is the best solution in my opinion. Unless you itemize, you cannot deduct. The deduction is a fraction of the amount of interest paid on the mortgage. This is explained in detail on Investopedia.
Agreed Mr. Bear, except in the article "... can possibly have a better return ..." rarely happens, because of several factors that must be met.
We paid off our place in 6.5 years. I didn't have enough to itemize deductions and I made too much to get any good write-offs (plus no children). My sister had a huge house and her own business so everything was a write-off for her. She paid off her house and lost a huge write-off. I guess you can say everyone's situation is different.
We can pay off our house in ten years. I am just trying to plan ahead because 10years will fly by! Thanks everyone for their comments.
Damn! Good for you! Not many people can do that nowadays. I can't wait to pay off my house. I will probably end up paying more in taxes. without the tax deducation
Ian: "I am better off by investing rather than paying off my mortgage." John: We own an unmortgaged rental condo. Earlier this year, I asked the two financial experts we rely on -- tax accountant and certified financial planner -- for advice on dealing with the equity we have. They were in total disagreement. The tax accountant said, "Do nothing. It's a great asset, and the chances are good that it will appreciate in value at a rate better then any reliable investment you could make with the money." The CFP said, "Mortgage it to the hilt, and invest the proceeds in municipal tax free bonds, REITS, and/or mutual funds, where the after-tax return can reliably be in the 7 or 8 percent range. Gee, what's a fella to do? Lots of mulling going on, as we move into what statisticians call "Type I vs Type II error" -- is it better to do something and then wish you hadn't, or to not do something and then wish you had. Pascal's Wager, as applied to finance, I guess. Stay tuned.
I paid off my house early. For me, any tax deductions are more than offset by interest not paid. I actually did some calculations at one time but have long since forgotten them. More than financial savings, I simply don't like debt. This is a personal quirk. I even pay off my credit cards several times per month. Basically I have credit cards for the rewards and pay them as I go. I recognize the difference between good debt and bad debt and I recognize everyone's situation is different. But for me, I have much greater peace of mind not owing anyone money.
Debt free is the way to be. Conversely, for those who cannot afford to be debt free, the tax write-off of a mortgage payment is a nice consolation from the government. A better way to get write-offs is to make donations to tax exempt charities. Donate anything and everything that you get rid of. Furniture. Kitchenware. Clothes. Toys. Books. Old radios or CDs. You name it and you can claim it. It adds up if you stay on top of it.
Yes. I didn't take a tax hit when I paid my home off, although your situation may be different, consult a true tax professional. Remember, tax write offs are not free money, it's just a discount on what you're spending. You're arguably almost always better off not having an expense than obtaining a slight discount (tax write off) on a portion of said expense. Granted, if you have other debts, I'd be inclined to pay them off before what is likely a low interest mortgage. Even if upon itemizing, you don't exceed the standard deduction without your mortgage in consideration, you still can use the standard deduction. Assuming you're not dealing with alternative minimum tax issues, in which case you really should be consulting a tax professional.
A good explanation of the math comparing the two options. https://www.youtube.com/watch?v=7mMPsUgETVk
