Considering Your Home Mortgage Tax Deduction

Let Turbo Tax 2014 guide you at tax time.

Many people debate the merits of having a mortgage tax deduction when they file their taxes.

It makes sense to work at lowering your taxable income and getting all of the credits and deductions that you are entitled to, and claiming mortgage interest may be at the top of the list for you. Some homeowners think so much of this deduction that they forgo paying off their mortgage in spite of having enough money to do so. The question becomes whether it makes more sense to keep the savings or eliminate the mortgage debt entirely.

Home Mortgage Tax Deduction
English: An icon from the Crystal icon theme. Nederlands: Een icoontje van het Crystal icon thema (Photo credit: Wikipedia)

One example:

Q: I have enough financial resources to pay my mortgage debt in full and still have money left for emergencies. The savings account pays a low interest rate, and I am concerned that paying off my mortgage and losing this deduction will adversely affect me at tax time. I feel that I budget wisely, and I am committed to putting as much money in my retirement account as possible. What would you recommend?

Singletary: I would advise you to pay off your mortgage, but with the following caveat.

Review the items on your return, and remember that a tax credit is different than a mortgage deduction. Tax credits lower your taxable income, and deductions eliminate percentages of your tax obligation. You may pay more in taxes if you do not have a mortgage, but this amount may be much lower that you would pay in annual interest on your home loan. Keeping a mortgage just for a possible tax break does not make sense in the long run.

The caution about eliminating your mortgage refers to using your savings in the current economic climate. You should consider things like your job security, your health, and your ability to find work if you lost your job before you take steps to pay off your mortgage. You cannot predict when you may need an emergency fund of available cash, and tying up your money into your home equity may force you to borrow against your home or sell it. If you can continue to save for retirement and sustain a proper emergency fund, then I would recommend taking the steps to pay off your mortgage.

The Mortgage Interest Tax Deduction Is Being Eliminated

The mortgage interest tax deduction is going to be ditched. The president and CEO of the Mortgage Bankers Association, David Stevens, said the MBA is not religiously wed to the deduction. He said this is as long as any change is part of a tax reform proposal that is comprehensive and not just a one-off change.

Almost 44 million taxpayers deducted around $72 billion in mortgage interest from taxes, ending in the year 2014. However, by 2019, that figure may go up as high as $96 billion. This means this will be the largest tax breaks that individuals have ever taken.

Homebuyers who are middle-class benefit the most, as around 43% of taxpayers had adjusted gross incomes between $100K to $200K. Another 40% made less than $100K.

In the past, the MBA appeared to oppose attempts to reduce the deduction or to eliminate it. The statements by the CEO shows they are departing previous opposition.

Tax Carnival Ecstasy – August 29, 2013

English: Steve Jobs shows off the white iPhone...
English: Steve Jobs shows off the white iPhone 4 at the 2010 Worldwide Developers Conference Español: Presentación del iPhone 4 por Steve Jobs en la Worldwide Developers Conference del año 2010 (Photo credit: Wikipedia)

Welcome to the August 29, 2013 edition of Tax Carnival Ecstasy. In this edition we start with a look at the rear risk of investing in the stock market by Matt Becker. Todd has  a nice guide to target retirement funds on his blog Fearless Men. Finally Bill Smith looks at Carl Icahn investing in Apple Inc. Hope you like the articles, share them on Facebook, tweat about our carnival and come back next time.

Matt Becker presents The Real Risk of Investing in the Stock Market posted at Mom and Dad Money, saying, “Investing in the stock market carries with it a very large risk, one that is rarely talked about in the financial media. Today I want to address that risk head-on so we can all understand exactly what we’re getting into when choosing to invest in the stock market.”

retirement

John Schmoll presents Investing in Stocks: Are You a Trader or Investor? Plus a Giveaway! posted at Frugal Rules, saying, “There are various strategies investors can implement in the stock market yet many do not stop to think which is best for them. This lack of preparation can significantly undermine their investing efforts and hinder their attempts to grow wealth and save for retirement.”

Todd presents The Short and Sweet Guide to Target Retirement Funds posted at Fearless Men, saying, “How to make Target Retirement Funds work for your financial stability and retirement. Invest now and invest early!”

tips

Bill Smith presents Carl Icahn Invests in Apple Inc. posted at FastSwings, saying, “It wasn’t too long ago that the drop in Apple stock seemed like it would not stop as the price dropped all the way down to $400 a share after the death of legendary CEO Steve Jobs.”

Todd presents Maximize Your Federal Tax Withholding Allowance And Keep Your Own Money posted at All Things Finance, saying, “Read from JW on how to not be stupid with next years withholding. He knows what’s up: trader for 14 years. Series 7 & 63 licensed. Masters in Financial Management. Teacher of 100+ hours of financial education classes.”

Bill Smith presents Does Chromecast Make Google A Good Investment? – FastSwings.com posted at FastSwings, saying, “Even if you don’t consider yourself particularly well-informed with regards to the stock market, the financial success and industry dominance of Google as a company is enough for most people to throw their money behind it.”

That concludes this edition. Submit your blog article to the next edition of tax carnival ecstasy using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.