Can someone explain the whole tax disadvantage when it comes to not paying off...

Sir_Gallonhead
Sir_Gallonhead

Can someone explain the whole tax disadvantage when it comes to not paying off a mortgage? Was reading the first comment in this post, and I just don't understand it. Why would anyone want to not pay off a house? Is the dude full of shit, or am I just uneducated?

All urls found in this thread:
https://www.irs.gov/publications/p936/ar02.html#en_US_2015_publink1000229900
http://www.investopedia.com/terms/n/negative_gearing.asp
Spamalot
Spamalot

Mortgage debt is a tax deduction. So unless you are retired you are often better off keeping the debt so you can get the tax deduction.

This scenario depends on the interest rate of your loan though

Carnalpleasure
Carnalpleasure

@Spamalot

How much is the tax deduction? And if it's paid off, sure, you don't get the yearly tax deduction, but you also don't have to pay 12 months of mortgage payments, which should be far more than any tax deduction could ever be.

TalkBomber
TalkBomber

@Sir_Gallonhead
ok, let me help you out,

you spend a dollar in interest to save .30 in tax when you have a mortgage on a rental property.

BUT: the downside is in opportunity cost. instead of paying off your rental property mortgage, you could use it as a downpayment on another property, for additional income.

TurtleCat
TurtleCat

What you actually do is pay your mortgage for a few years, then refinance and pocket the difference, paying no tax. That way you are perpetually "paying your mortgage", but since your mortgage is never paid you can always deduct your rent which pays the cost of mortgaging the property etc, plus use depreciation to reduce your other tax burdens.

-Put 20% down on home
-Set rent to cover mortgage, insurance, PPM, etc
-Do this for a few years
-Refinance
-Use equity you built up as a down-payment on another property

The only problem is if the housing market goes tits up. Then you're fucked.

DeathDog
DeathDog

@Carnalpleasure

I think all of it.

So lets say you paid $20k one year on a mortgage, you could just deduct that on your taxes.

If you are making $100k+ a year it's a pretty savvy deduction.

So it does not make sense to pay off your mortgage early even if you are capable of doing so.

Stupidasole
Stupidasole

@Sir_Gallonhead
In a simplified way taxes work like this and I'll use euphemisms:
-Income
-Some special deductions
-Then you choose either the standard deduction or you can itemize

If you're single, the standard deduction is 6300 (double if married since two people). If you have a bunch of deductions, kids, mortgage interest over 6300 then you can itemize, i.e. list a bunch of deductions. Anything less than 6300 (or 12600 if you're married), you'd use the standard since you'd obviously want a higher deduction.

Retards think you should keep a mortgage for the writeoff. It's asinine for several reasons.
1. You're spending $1.00 to save $0.30
2. Why stay on the hook for a mortgage,anything could happen
3. Most people won't take that extra $0.30 and do something "productive"

What's more, say you're married and you have a standard deduction of $12600. Suppose your mortgage interest is $13000 and have no other deductions. It'd make sense to itemize since $13000 is a larger deduction. As you pay down the mortgage, you'll pay less and less interest/your monthly payment, so eventually you lose the deduction. What's more, in reality you only had a $400 benefit over the standard deduction you would have had intrinsically. So dummies think hurr durr $13000 write off when in reality they'd have $12600 without having to pay $13000 in interest if they had no mortgage in the first place. Plus it's a deduction, not a credit. So you're spending $13000 which goes into the ether since it's all interest expense to get back $3900 on a tax return. If you used the standard deduction by not having a mortgage, then you'd get back say 30% of$12600 ($3780) without having spent anything. I'd much rather net 3780 than net -9100 any day.

Finally after losing the deduction by paying down the mortgage, you'd end up paying interest without any deduction. It's best to pay the thing off, regardless of what any retard tries to tell you.

Spazyfool
Spazyfool

@Stupidasole
To clarify I'm assuming a 30% effective rate and utilizing the context of a personal home one lives in. If it's an investment property, it's arguably better to maintain the leverage and use cash flow for down payments on future investments.

Fried_Sushi
Fried_Sushi

@Carnalpleasure
This is only on your mortgage for you primary residence (up to a million in home value) so you cannot deduct mortgage interest on investment properties.

Stark_Naked
Stark_Naked

spending $1.00 to save $0.30

why are Amerifats so retarded?

Crazy_Nice
Crazy_Nice

@Spamalot
@Carnalpleasure
@TalkBomber
@DeathDog
@Spazyfool

There is NO tax deduction for investment or rental properties, you mongs. Only personal qualified homes.

See:

https://www.irs.gov/publications/p936/ar02.html#en_US_2015_publink1000229900

Spazyfool
Spazyfool

@Sir_Gallonhead
make $0.5m / annum
invest in houses that are gaining in a booming market, making sure to lend against them
deduct debts from income in tax
now in smallest tax bracket, pay jack shit in taxes despite making capital gains
grow wealth
sell, pay off debts
rinse and repeat

t. Australian, where if you hold an asset for longer than a year you only pay half the tax on it you would have otherwise paid at the point of sale

http://www.investopedia.com/terms/n/negative_gearing.asp
bad for the economy, good for wealthy investors

Boy_vs_Girl
Boy_vs_Girl

@Crazy_Nice

That's why you deduct mortgage/insurance etc as a business expense for your rental property business.

SniperWish
SniperWish

@Sir_Gallonhead
The mortgage tax deduction meme has always been a meme. The deduction on an average 200k house is barely more than the standard deduction.

Stupidasole
Stupidasole

@Spazyfool
That's when you itemize you donate goods to charity like goodwill. You then have to provide a list of goods and descriptions as well as a monetary value assigned to each item.

Also if you are going to go along that path you should also itemize either your sales tax or state income tax. I'm actually going to assume that sales tax would actually provide you more of a benefit as it is very easy to sneak in additional paperwork or maintain your receipts.

Illusionz
Illusionz

@Spazyfool
30% Effective

You mean a marginal 30% rate. An effective 30% rate is very hard to reach.

Evilember
Evilember

@Illusionz
You're right

JunkTop
JunkTop

@Sir_Gallonhead
I didnt read it since most of this shit is over my head.

I will never own another house in my name agai or pay it off as asset protection.

Simply put if u own it some faggot can sue or scam u out of it.

If its not in your name it can be a business and tax advantages out the ass.

Borrowing against it every 6 months or a year also gives you loest interest loans u can get for casual investing.

Also if some faggot goes to sue you they see you have $5,000 equity in a $1,000,000 house they will turn 360 degrees and walk away. Because now they have to pay your mortgage and in most cases court fees and shit will make it not financially worth it.

Far as taxes go beats me.

PurpleCharger
PurpleCharger

@TalkBomber
Oh, also, motgage payments arent taxed.

So if u pull 50k out and invest it u just invested tax free money. U now have new property tax and payments and interest. But if u play it write thats how a lot of rich people go.

New_Cliche
New_Cliche

@Stark_Naked
Theres more to it than that. Investment properties, extra capitol to invest, what u said, appreciation, depressiation.

It may not be spend a buck to save 30 cents. It may be spend a buck to make 2.30 depending on a million things.

95% of the worlds lawsuits happen in this shithole and its likely our real estate tax code is longer than your countries laws put together.

Its a clucterfuck and misinformation is partly how we keep our sheeple in a lifetime of confusion and debt.

I dont like ot eaither.

Illusionz
Illusionz

@Spazyfool
Lucky fucks.

Also can write off 30% of a rental property if u fuck up and sell. Time to jump ship

Harmless_Venom
Harmless_Venom

Pay off property
Transfer title to a shell LLC
Nobody can fuck with the property

Stop being fucking retards.

As far as taxes, the mortgage deduction is spectacular and allows you to write off mortgage payments against taxable income.

But you have to be a fucking retard to think that
income-(expenses+taxes)
equals a sum greater than
income-taxes

StonedTime
StonedTime

@Stark_Naked
Its more like

Pay .70 to have a dollar you can invest

Lunatick
Lunatick

@Harmless_Venom
Are u saying to pay it off?

I would keep it levereged to the hilt to buy another property u van leverage and keep up the gain train

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