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Owning a house free and clear is a very worthwhile goal. Do it.
I absolutely agree with you. No one will ever convince me that renting is better option or that having that mortgage interest deduction is the way to go.
When I sell this summer I will get my initial investment (what I paid for this house) plus $225,000 (maybe more). So~~~I will get back every penny I have spent on taxes, insurance, maintenance, utilities plus more. I will have lived here for 22 years free. I shaved 10 years off the loan so how much I paid in interest is something I'd like to figure out.
Our house in NY was paid off when we were 47 years old. We took out a mortgage for the FL house at age 58. Considering the NY house had 14.75% interest in 1983 before we refinanced, the 3.4% rate on the FL house was hard to believe. The 80's were tough. The plan is to be mortgage free after DH retires in four years and we will sell the NY house. With our primary residence being FL, the amount of money we save from no income tax there covers the NY property taxes currently. DH has to pay NY income tax when he physically works in NY which is usually one day a week since he travels and he uses more vacation time in NY, to keeps the taxes he has to pay as minimal as he can.
My PITI is approximately $1475. Of that, about $700 is interest, and about $400 property tax. All of that is deductible, over $13k a year.
The 2 BR apartment I rented before I found my condo was of comparable size. The rent was $1400. NONE of that was deductible.
The standard deduction is only $6200 IIRC. So it is not better for me to have continued renting.
And now I can add in charitable deductions, which would not have exceeded the standard deduction and which I could not claim before.
(I can't do medical because my insurance is good enough that my out-of-pocket is minimal, and I can't deduct interest on the Parents Plus federal student loan I took for my daughter's college because there is an income restriction on taking that deduction.)
sorry but anything that did not make it as a deduction before over the standard deduction still gives you nothing back on them . . while it may contribute to the total going towards getting over the standard deduction it still gives you nothing extra on those components .
the reverse can be true too . we rent , we have very few itemized deductions to take and with us needing over 12k to get over the standard deduction we fly the empty seats and get money back we never spent in deductible items and can put it towards the rent .
with our itemized deductions only hitting 6 or 7 k we pocket the rest without ever laying it out . as that homeowner you actually spent those dollars .
so each situation will be different . there are no rules when it comes to rent or buy or our taxes ,.
My PITI is approximately $1475. Of that, about $700 is interest, and about $400 property tax. All of that is deductible, over $13k a year.
The 2 BR apartment I rented before I found my condo was of comparable size. The rent was $1400. NONE of that was deductible.
The standard deduction is only $6200 IIRC. So it is not better for me to have continued renting.
And now I can add in charitable deductions, which would not have exceeded the standard deduction and which I could not claim before.
(I can't do medical because my insurance is good enough that my out-of-pocket is minimal, and I can't deduct interest on the Parents Plus federal student loan I took for my daughter's college because there is an income restriction on taking that deduction.)
That's because you are single. If you were MFJ, you would just be over the standard deduction by a thousand or two.
Even single, you are only escaping tax on about what, 10k ? If you are in the 25% bracket, you are saving $2500 per year in federal income tax (maybe some state income tax too).
Saving $2500 is nice, to be sure. And of course the real reason you are paying that interest is because you want to own your home instead of rent. But deducting mortgage interest is not the slam dunk many people believe it to be.
The standard deduction rises a bit each year, and was 6300 for single in 2015, 7850 for those aged 65 and older. Your mortgage interest will decrease a bit each year. The tax benefit of the mortgage will disappear entirely at some point.
in reality until you clear the standard deduction nothing you have to deduct adds anything extra .
all you will see in anything additional is that part of your mortgage interest that takes you over the top .
Even if your mortgage interest is only 3/4 of the amount of your standard deduction, then all the rest can often far exceed the standard deduction and make it all worth the effort.
There are people paying 28% of their income [or more] to taxes. That is insane.
I have not paid into income taxes for many years. The idea that people willingly pay so much seems crazy to me.
Quote:
... in effect you are spending 3 or 4 dollars to win a 1 dollar prize ..
No.
Nobody buys a house just for the tax write-off.
Nobody has a surgery just for the tax write-off.
Nobody joins a trade organization or completes professional training, just for the tax write-off.
You spend money on things you need or that will further your career, and those expenses will also lower your taxes.
Seems odd to me that so many people are paying income taxes when the alternative is available.
which order you stack your deductions in is irrelevant , only the total matters . saying you put the mortgage in the deduction bucket first so the other deductions get stacked on top to exceed the standard deduction does not make things any more deductible then they were .
it still is only that which exceeds the standard deduction that makes any difference .
if all your other deductions gave you nothing extra before then they still give you nothing extra . it is only what you add on over the standard deduction that matters
Last edited by mathjak107; 05-27-2016 at 07:52 AM..
that is correct and spending money on a mortgage and getting the write off takes more money out of your piggy bank then not having that mortgage . so write offs are not always a good thing . it just means you paid money out over and above the price of the house .
whether you can capitalize over the long term on the fact you kept a mortgage when you could have paid cash is an individual issue and a different subject totally .
there are advantages to both . but all things being equal you are further ahead not paying out all that interest even with the deduction unless you can capitalize on that fact .
bottom line a mortgage vs cash may be the more expensive deal if you can't capitalize on it .
if you took a mortgage the last 2 years you would be behind and not only have to do better in the coming years but make up the last 2 years too .
getting ahead in retirement is a lot harder . if you are spending down from your portfolio in retirement you can have good average returns but if the sequencing is poor you lose . unlike your accumulation years where you just have to beat the interest on the mortgage , in retirement if you are spending down you now have a new very crucial variable in the equation and that is the sequences of those average returns have to be good .
you have not one parameter to over come but now you have 2
Last edited by mathjak107; 05-27-2016 at 07:51 AM..
That's because you are single. If you were MFJ, you would just be over the standard deduction by a thousand or two.
Even single, you are only escaping tax on about what, 10k ? If you are in the 25% bracket, you are saving $2500 per year in federal income tax (maybe some state income tax too).
Saving $2500 is nice, to be sure. And of course the real reason you are paying that interest is because you want to own your home instead of rent. But deducting mortgage interest is not the slam dunk many people believe it to be.
The standard deduction rises a bit each year, and was 6300 for single in 2015, 7850 for those aged 65 and older. Your mortgage interest will decrease a bit each year. The tax benefit of the mortgage will disappear entirely at some point.
plus as time goes on that deduction is less and less as the mortgage gets paid down ..
which order you stack your deductions in is irrelevant , only the total matters . saying you put the mortgage in the deduction bucket first so the other deductions get stacked on top to exceed the standard deduction does not make things any more deductible then they were .
it still is only that which exceeds the standard deduction that makes any difference .
if all your other deductions gave you nothing extra before then they still give you nothing extra . it is only what you add on over the standard deduction that matters
not paying taxes is an improvement in cash flow , it is not an increase in income . taxes are an expense !
the difference is when expenses and inflation rise there is nothing left to cut tax wise and no additional income to pay with ..
a reduction in expenses is never an increase in income , it is only a cash flow improvement . your income stays your income . ideally you want both a cut in expenses and an increasing income . .
Last edited by mathjak107; 05-27-2016 at 08:41 AM..
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