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Does the new tax law give you an incentive to pay off your mortgage?

Does the new tax law give you an incentive to pay off your mortgage?

July 12, 2018
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For calendar year 2017 nearly 32 million tax filers claimed mortgage interest as an itemized deduction on their 1040 tax return. With the passage of the most recent tax law in December, that number is expected to drop to only 14 million Americans in 2018. American taxpayers will save less than $25 billion in mortgage tax write off this year, down from nearly $60 billion in the previous year according to Congress's Joint Committee on Taxation.
 
Two provisions in the new tax law are primarily responsible for this significant reduction in tax benefits for Americans. The first is the doubling of the standard deduction. For married couples filing jointly, the standard deduction will rise from approximately $12,000 to $24,000. This means that your Schedule A itemized deductions, including state and local taxes, property taxes, medical deductions and charitable contributions will need to exceed $24,000 per couple in order to continue to itemize and deduct these on your tax return.
 
The second important change is that state and local income taxes, sales taxes and property taxes (SALT) are now limited to $10,000 of deductibility on schedule day. This limit is per tax return not per person. This combination of higher standard deductions and lower limitations on SALT taxes means that many people will no longer be itemizing these deductions. 
 
This means it may be more advantageous for people to pay down the mortgage debt in a more concentrated and intentional way. This is especially true if the mortgage debt has a variable interest rate that could continue to rise as the Federal Reserve Bank continues to embark on it's interest rate normalization policy. 
 
If you have questions regarding these issues and how they impact your financial plans, please let us know. We would love to help you understand and make informed decisions on these potentially significant changes to YOUR financial future.
 
Jesse
 
*Securities and advisory services offered through Cetera Advisors LLC, Member FINRA/SIPC. Cetera is under separate ownership from any other named entity.
*For general information purposes only. This information is not intended to be a substitute for specific individualized tax advice.*