Does it always make sense to pay off your mortgage? Today, I’m going over some of the tax benefits of mortgages, including interest and property tax deductions.
Recently, a client of mine came into a lump sum of cash, and they faced a pretty interesting dilemma I wanted to share with you. Essentially, they wanted to know whether or not they should use their money to pay off their mortgage. While fully owning your home is obviously a great financial situation to find yourself in, the answer to this question isn’t as cut-and-dry as it might initially seem. Here are three reasons why it might make sense to actually keep your mortgage and invest your money elsewhere:
1. Mortgage interest deductions. In case you don’t know, you can deduct up to $750,000 in taxes from your mortgage interest. Depending on how much interest you’ve already paid off on your mortgage and your financial situation, it might actually make sense to keep your mortgage so you can take advantage of this tax deduction.
“Property tax deductions can save you a ton of money if you live in a high-tax area.”
2. Property tax deductions. You can deduct up to $10,000 from state and local taxes, which is especially useful if you live in an area with high property taxes. For example, Texas infamously has high property taxes; if you live there or in a similar state, this tax deduction could end up saving you a ton of money in the long run.
3. Capital gains taxes. When you sell your property, you can avoid paying up to $500,000 for married couples if you transfer the funds into a new property. If you’re single, you can transfer $250,000. This is a huge advantage to homeownership that you should take advantage of. It might require you to take on a mortgage again after selling your property, but the tax benefits of avoiding capital gains could be worth it, depending on your financial situation.
At the end of the day, what makes sense for you depends on your financial situation and goals. While keeping a mortgage isn’t for everyone, it could work out in your favor. Just call or email me if you’d like to go over your financial goals. I look forward to hearing from you!
