Introduction
Are you constantly torn between investing and paying off your mortgage early? You’re not alone. Many believe that holding onto a mortgage offers some tax advantages through mortgage interest deductions. However, I’m here to debunk that myth and share why I paid off my mortgage in just five years.
The Misconception About Mortgage Tax Deductions
One argument against paying off a mortgage early is that you’ll miss out on the tax deductions for mortgage interest. That was my initial thought too, until I dug a little deeper and realized something shocking. Over the past five years, I didn’t benefit from the tax deduction on my mortgage interest at all.
The Standard Deduction Game-Changer
Everything changed in 2017 when the Tax and Jobs Act was implemented, significantly increasing the standard deduction. For example, for the year 2023, the annual standard deduction is $27,700 for those married and filing jointly. For single filers, it’s $13,850.
To benefit from itemizing your deductions, including mortgage interest, your total deductions need to exceed these standard amounts. I found that even though I was paying $5,600 in mortgage interest in a year, it didn’t make sense to itemize my deductions.
The Reality Check: Are You Actually Itemizing?
Before you count on that mortgage interest deduction, take a moment to review your past tax returns. Did you actually itemize your deductions or did you opt for the standard deduction? If it’s the latter, the mortgage interest deduction might not benefit you.
The Math Doesn’t Lie
Consider this: why pay $5,000 in mortgage interest to potentially save $2,000 in taxes? Holding onto a mortgage for the sake of a tax deduction might not be financially beneficial. After paying off my mortgage, I still take the standard deduction, and let me tell you, it’s a game-changer.
Who Really Benefits from Itemizing?
Since the new tax law of 2017, only those making $200,000 or more tend to itemize their deductions. If you have multiple properties and a much higher income, itemizing may make sense for you.
Conclusion
Unless you have numerous deductions that exceed the standard amount, paying off your mortgage could be a wise financial decision. It’s liberating to be free from debt, and the peace of mind is worth more than any potential tax benefits.
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