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Does my mortgage truly reduce my tax debt?

irstaxfighters • Jan 30, 2017
Mortgage Written On Calculator — Houston, TX — IRS Tax Fighters
Many clients have asked us if they should buy a home and hold a mortgage to reduce their tax debt. Our response is that they should buy a home if they want it for home ownership reasons and not for tax reduction purposes. Most people pay rent if they are not paying a mortgage and are, therefore, helping someone else gain equity or ownership of the property. So, for that reason, yes, it’s a good idea to buy a home. It’s better to help yourself own something rather than help someone else own it.
However, it is generally not worth the reduction in tax debt to hold onto a mortgage because the tax reduction that it provides is just a small percentage of the real estate interest paid. So, for instance, a payment of $10,000 in mortgage interest and $5,000 property taxes will lead to a tax reduction of $2,250 if a straight tax rate of 25% and the standard deduction for a single person is used. The tax reduction is even less for head of household and married filing jointly filing statuses since the standard deductions are higher for those filing statuses. We do not recommend paying $10,000 in mortgage interest in order to get a tax savings of $2,250. That’s a net loss of $7,750! That money can be better spent, and there are other tax reduction strategies that can be used.
We know that not everyone has the ability to pay their mortgage in full immediately, but we just provide this information to say that working towards paying off the mortgage is generally better than holding onto the mortgage to get a tax reduction. Some people opt to take out a 15 year mortgage rather than a 30 year mortgage. Some people pay one additional monthly payment per year with instructions to the mortgage company to apply the payment to principal to help pay off the mortgage quicker.
Our goal at IRS Tax Fighters is to advise our clients in a way that leads to increased wealth and financial freedom. Call IRS Tax Fighters today at 281-962-0070 or toll free 888-959-2671 to see how we can help you reduce your annual tax debt, increase your wealth, and move toward financial freedom.
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