Most homeowners appreciate being able to deduct the interest they pay as a part of their mortgage. But what if I told you there isn’t a real benefit there? I hear people say they need a bigger mortgage because they need a tax write-off. That is flawed thinking; why do we believe going into debt can somehow benefit us? I hope today’s video gives you some food for thought about carrying debt around for tax purposes.
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If you think writing off that interest On your taxes is a benefit to you I’ve got news for you [Music] What’s up everyone thank you for Stopping by the achieve financial Coaching channel where we believe in Breaking the chains of debt and talking About all things related to personal Finance my name is kenny simon i am your Personal finance coach and today i want To talk just for a little bit about Writing off mortgage interest debt right We all know that on our taxes Um that we can write off the interest That we pay on mortgages right now Listen i am not a tax professional but i Do keep up with some of the changes and Then assess how they impact me i have a Few things i want to share with you Today that might make you rethink Whether or not writing off that interest Is a benefit to you subscribe to the Channel like the video please leave a Comment and share this with some friends Let’s get started so let’s start today’s Video of talking about with a little Definition talking about what a Deduction actually is just so we’re all On the same page so a deduction lowers a Person or organization’s tax liability By lowering their taxable income These deductions are expenses incurred During the year that are subtracted from
Your gross income when preparing taxes So these are things that lower the Amount of taxable income that you have Now we’re specifically talking about Mortgage interest today so i want to Talk about the mortgage interest Interest deduction limits because there Is a limit and the date that there is a Specific date on which depending on if You bought before or after that you can Deduct a certain amount and that date is December 15 2017. so if you bought a House before December 15 2017 you can deduct up to One million deduct interest on up to one Million dollars of mortgage debt if you Bought after december 15 2017 you can Deduct interest on up to 750 000 of Mortgage debt there are a few exceptions To that check with your local tax Professional around whether or not you Had a contract drawn to purchase etc but Those are the limitations okay let’s get Into why i really don’t think mortgage Interest is worth the risk Or that it’s not a huge benefit the First reason is Most people take the standard deduction And do not itemize you can’t do both you Can’t do a standard deduction and Itemize the 2017 tax cuts and job act Went into effect a few years ago around 2018 and it doubled the standard Deduction which led to fewer people
Actually itemizing and if you don’t Itemize you can’t write off mortgage Interest so if you do research anywhere From 75 percent on the low end all the Way up to 95 90 rather on the high end of taxpayers Use the standard deduction so most of us Aren’t even taking advantage of this so Most people don’t itemize and you can’t Write off mortgage interest mortgage Interest if you are not itemizing okay So that’s the first reason second reason All debt carries risk Think about it do you really want to Carry risk around Longer than needed to say you are Getting a tax write-off you are actually Going to Keep debt So that you can say you Have a write-off so what happens if Something happens to your income and now You cannot pay that debt back to me That is a huge risk and me personally I’m not willing to carry that risk Around Okay The next thing is This is really only a benefit if you’re Kind of stuck with your mortgage right So if you’re not in a position to pay it Off quickly and you have to have your Mortgage So if you can’t pay it off quickly and
By the way you itemize your taxes there Is somewhat of a benefit to being able To write off the interest to reduce your Taxable income it’s kind of a backhanded Benefit because you have to carry debt To get it And then next Charitable contributions give the same Benefit right so you need to check with A tax provider but you have qualified Contributions and if you itemize you can Write off up to 100 Of those deductions it’s the same Quote-unquote benefit that you would get From writing off mortgage interest right See your tax professional to see what Qualifies as 100 deductions and some Deductions may be capped based on your Income the last reason i’ll give you in Terms of why i don’t think mortgage Interest is a benefit is just the math Is just funny and when you do the math It truly does not add up to a benefit Now i want to give you a basic Oversimplified example and i say basic And oversimplified because in reality Our tax brackets are actually Progressive Meaning the first amount of your income Is taxed at a lower rate and taxes begin To rise as you cross the threshold for The upper brackets so for example you Make 70 70 000 which puts you in the 22 tax
Bracket not all 70 000 was taxed at 22 Percent just the amount greater than 40 525 dollars right and these by the way Are actually actual tax brackets from 2021 that we’re showing you here on the Screen so in this example some was taxed At 10 to 12 which are the lowest Brackets right and then what they do is They get you enough what they call an Effective tax rate and that’s sort of Like the average of all the rates that You know you ended up sort of paying Taxes in So in this super simple example that is Oversimplified You make seventy thousand dollars after All your deductions say your salary is Seventy thousand dollars so that puts You in the twenty two percent tax Bracket Let’s say you pay one thousand dollars Per month in mortgage payments for a Total of twelve thousand dollars for the Year If you didn’t have that payment Right you would owe the government 12 000 times 22 Equals 2640 in taxes so you tell me that you Are going to send 12 000 to the bank To keep from sending the government 2600 Bucks somebody make it make sense to me Just make it make sense you are better Off paying those taxes and investing the
Difference between what you would be Paying in a mortgage in taxes which is 9 360 per year like this is definitely not A fair exchange for carrying around Mortgage which is also risk so i hope i Have done enough today to get to you to At least think about whether or not Carrying around mortgage debt for Purposes of writing off the interest on Your taxes is a good idea i personally Don’t think it’s a good idea i actually Had a pretty in-depth conversation with One of my buddies who’s looking for a Bigger house right now because he wants To be able to write off more in his Taxes and if you just think about that I’m gonna go get more debt so i can Write off more in taxes it doesn’t even Make logical sense but we don’t even Second-guess it because we’ve been told These things for so long that we just Take them for granted and we just go Ahead and do it i personally think it is A better idea to be debt free pay your Tax obligations and then invest the Difference save the difference send your Kid to college with the difference help Someone with that difference right you Saw the basic math that i did on the Example and the math just doesn’t work Out now listen i am not a tax Professional but work with your tax Professional to figure out what is a Legitimate right are for you and then
Don’t forget 90 of us 99 out of 10 People don’t even itemize so we’re not Even getting the benefit but we don’t Look into these details but i bet now You will at least i hope you will Remember this you can achieve much Greater things than where you are today If you’re willing to put into work Conceive it believe it and achieve it I’ll see you on the next video