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Wednesday, March 4, 2009
Pay Off All Debts
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A downside to paying off your mortgage is that you won't be able to deduct the interest on it.
ReplyDeleteHowever, if you do things right you should have little enough interest that you will be better off with the standard deduction.
Don't forget to add insurance to the property taxes as an ongoing expense.
Thanks for your points. The benefit of deducting interest on your taxes is entirely dependent on 1) How much interest you've paid and 2) how much taxes you owe. I've yet to be able to take the deduction on our interest payments.
ReplyDeleteAt any rate, not paying interest at all is better than paying too much interest to be able to get a little bit of taxes back. I think the current standard deduction is around $10,000 for a couple filing jointly. You need to pay more than that in interest in order to begin deducting interest. And if you don't owe alot of taxes the savings on the taxes owed won't be balanced by the interest paid in order to get reach that threshold. All that interest is simply going to the bank - not to principle or your own savings.
Good point about the insurance - I'll update the post.
"I've yet to be able to take the deduction on our interest payments. "
ReplyDeleteLike I said, you are doing it right. The interest thing will mainly be noticeable to someone who has been deducting interest because of a big mortgage and can't after they pay it off, or small business owners that have lots of deductions.
People that work for someone else and have tax money held out of their paycheck may want to consider changing their deductions at work. Small business owners may want to look at their quarterly payments and consider adjusting them.
Mortgage interest isn't a good thing, but when you are making lots of deductions for business expenses and you suddenly can't deduct that $5000 or whatever off your income, you notice it. You won't notice so much if you pay it off gradually over 15 or 30 years as the interest gets smaller, but if you pay it off suddenly i.e. with inheritance, etc. you will notice the change more.
Keep up the good work here. It is fun and entertaining to read.
I'm not so sure about paying off my mortgage. The only debt my husband and I have is the mortgage, which is fixed at 5 and 3/8 interest. We can reliably make more money than that by investing in metals & the miners of metals. In bullion, you are putting away savings that are immune to hyperinflation. Why should I pay the mortgage now when this amount might be relatively trivial in 5 years, due to inflation? Since I personally expect very high or hyperinflation, my own advice would be NOT to pay off fixed interest debts, but rather, acquire tangible assets.
ReplyDeleteObviously, if one expects gold confiscation, that changes things. But the most likely actions, in my opinion, would be confiscation of the ETF's and safety deposit boxes.