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I am on the line for standard vs itemized deductions. Having a mortgage makes a nice difference. Even so that is a relatively minor factor. The best is making a nice return from investments. In your case none of these factors make much difference. If you do decide to buy instead of rent, you are still only planning on a relatively low cost condo. A potential mortgage is not likely to make much difference in your portfolio returns or your taxes.
i disagree , the mortgage is not allowing anything else to be deducted other than itself.
all it means is you spent 3 or 4 bucks in interest and get to have one come back . it does zero for anything else you have as deductions .
what you do with that money you didn't tie up in the house by taking a mortgage is a different issue other then taxes.
run your taxes with out the mortgage interest and then throw it in , you will see only the difference on the mortgage interest . it helps nothing else you might have that didn't clear prior.
You do not spend $3-4 dollars in interest to get $1. You spend the money to have a house and a place to live. In some places you would need to spend that amount on rent to have an equivalent place to live. The $1 you get back is a bonus.
Now if you do not need the mortgage to be able to afford the house, the reason to keep to take out a mortgage is related to the return on investment versus the cost of the mortgage. Again, the tax deduction, if you get any benefit, is just a bonus.
no ,, you would still have the house ,and 3 more dollars in your pocket even if the mortgage was paid off .
what you do with your money if it isn't in the house is another story , some may get a better return elsewhere some may not but that has zero to do with taxes.
the point being " THE MORTGAGE IS MAKING NOTHING ELSE DEDUCTIBLE OTHER THAN ITSELF "
we are only talking about whether keeping the mortgage is allowing you to deduct expenses you had previously that didn't clear the standard deduction. the anwer is no it does not help anything NOT deductible prior.
Last edited by mathjak107; 05-22-2015 at 08:06 AM..
Yes you would have the $3 but you would not have the $6 in returns from investments of the amount that was mortgaged. Personally I will take the $6, pay the $3 and keep $3.
This works really well but only when mortgage rates are low and only for those with enough in their portfolio to carry them through times of low returns.
you are not referring to the same thing namely your statement here
Quote:
Originally Posted by jrkliny
For me the mortgage deduction is a big help on taxes. I have considerable medical expenses but no other deductions. Without the mortgage I would need to use the standard deduction. With the mortgage I get a substantial deduction and reduction of my taxes.
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your mortgage has zero bearing on taking your medical deductions or not , or any other deductions that didn't make it over the threshold. that is all we are discussing.
whether or not the mortgage exists has zero influence on anything else you listed you couldn't take.
returns on investing money is not part of this discussion , only what you said above about writing off what you couldn't without the mortgage.
Last edited by mathjak107; 05-22-2015 at 08:16 AM..
The reason I mention medical is that without the medical deductions, there would be absolutely no mortgage deduction as I would use the standard deduction. Even with the itemized deductions, in my case I am not getting back $1 out of $4. I am getting more like $0.25. At least it is a little extra.
The main issue is getting investment returns that are safely well over the cost of the mortgage. Some people are still waiting for the sky to fall and do not invest. A mortgage would be a poor choice for them.
so what you really are saying is that IF IT WASN'T for your high medical deductions your mortage interest would fall below the threshold.
that makes sense and that statement i would agree with.
most retirees can't take anything but the standard deduction even with a mortgage .
but we live in such a high tax state with high real estate taxes that along with medical expenses can at least allow you to clear the standard deduction with the mortgage interest.
if you have the cash to pay off that mortgage and instead invest it and come out a head even better.
of course for those who need to spend down those assets to pay bills the years the markets are down will have you selling assets at a loss to pay a mortgage you may not have needed to carry so investing can be eventually undermined when we cycle down. kind of the reverse of what you get going up.
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Last edited by mathjak107; 05-22-2015 at 08:37 AM..
You do not spend $3-4 dollars in interest to get $1. You spend the money to have a house and a place to live. In some places you would need to spend that amount on rent to have an equivalent place to live. The $1 you get back is a bonus.
Now if you do not need the mortgage to be able to afford the house, the reason to keep to take out a mortgage is related to the return on investment versus the cost of the mortgage. Again, the tax deduction, if you get any benefit, is just a bonus.
A mortgage is just about the worst possible investment you can make. Let's say it costs you $30,000 a year to service a mortgage. Out of that $30,000, perhaps $16,000 goes to interest and you get to keep $14,000 as equity. You have to pay income tax on the $30,000, which costs you $7500, but you get $4000 back from the feds in a mortgage interest deduction. That means the mortgage investment only costs you $17,500 a year net loss to this wondrous "investment." At the very least, you are paying $12,000 a year interest for nothing.
"But wait," you say. "The balance on the mortgage is $400k at 4%. I can invest that $400k at 8% and make a killing." Sort of. As above, out of your $32k earnings you still lose $12k in interest and $8k in taxes, so your paper $400k is only earning $20k/year (5%). Out of that $20k, you are still locked into spending $14k just to service the principal of the loan, so you are down to earning $6k/year (1.5%) on your paper $400k, which may or may not be there in the future. For 1.5% you are accepting substantial risk. If you just paid off the mortgage, you would end up with a lot more than that paltry $500/month in your pocket. Not making that $2500/month mortgage payment is worth $30,000 a year in your pocket, tax free.
There are reasons for carrying a mortgage. It is a mandatory savings account for someone without the discipline to save steadily. Buying a house locks in housing costs, which have been inflating much faster than the CPI and, as bad an investment as a mortgage is, it beats paying rent, which is a 100% dead loss. Still, getting out from under a mortgage ASAP is an excellent long term strategy, as long as you stack the mortgage payment on top of what you were already saving for retirement.
A mortgage is just about the worst possible investment you can make. Let's say it costs you $30,000 a year to service a mortgage. Out of that $30,000, perhaps $16,000 goes to interest and you get to keep $14,000 as equity. You have to pay income tax on the $30,000, which costs you $7500, but you get $4000 back from the feds in a mortgage interest deduction. That means the mortgage investment only costs you $17,500 a year net loss to this wondrous "investment." At the very least, you are paying $12,000 a year interest for nothing.
"But wait," you say. "The balance on the mortgage is $400k at 4%. I can invest that $400k at 8% and make a killing." Sort of. As above, out of your $32k earnings you still lose $12k in interest and $8k in taxes, so your paper $400k is only earning $20k/year (5%). Out of that $20k, you are still locked into spending $14k just to service the principal of the loan, so you are down to earning $6k/year (1.5%) on your paper $400k, which may or may not be there in the future. For 1.5% you are accepting substantial risk. If you just paid off the mortgage, you would end up with a lot more than that paltry $500/month in your pocket. Not making that $2500/month mortgage payment is worth $30,000 a year in your pocket, tax free.
There are reasons for carrying a mortgage. It is a mandatory savings account for someone without the discipline to save steadily. Buying a house locks in housing costs, which have been inflating much faster than the CPI and, as bad an investment as a mortgage is, it beats paying rent, which is a 100% dead loss. Still, getting out from under a mortgage ASAP is an excellent long term strategy, as long as you stack the mortgage payment on top of what you were already saving for retirement.
I don't know many people that take out 1 year mortgages. To actually compare you would have to run the figures for 30 years. Trapping 2015 cash in an illiquid investment doesn't make much sense when you can make 360 monthly payments in 2016-2045 dollars but earn on the cash in 2015-2045 dollars. Even modest inflation will make a substantial portion of that payment.
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