Since the Tax Cuts and Jobs Act took effect, many Americans will no longer be able to deduct their mortgage interest payments.
Once America’s favorite tax deduction, now many are questioning whether they should try to pay off their mortgages faster. Carl Carlson, CEO of Carlson Financial spoke with News 3 about options people have.
According to a recent Wall Street Journal article, 32 million tax filers got a mortgage-interest deduction in 2017.
For 2018, that number will drop to 14 million. The biggest reason there is going to be such a big difference is because mortgage interest is an itemized deduction. Tax reform nearly doubled the size of the standard deduction so most people will be using that rather than itemizing.
For example, in 2017, a couple needed write-offs greater than $12,700 to benefit from itemizing deductions on Schedule A. Now these write-offs have to exceed $24,000, which will be difficult for most.
So someone who was keeping a mortgage and just paying the minimum for tax benefits, might not have an incentive to do so any more. Carlson said the question of whether to pay off a mortgage has always been a common one, but it’s coming up more and more and the tax reform changes things.
There are still other factors for people in the cap of no longer getting the tax benefit. Maxing out retirement savings and having an emergency/rainy day fund should both be higher priorities,Carlson said.
If you already have both of those things, paying down debt should be next, starting with the highest interest rate debt. If you got your mortgage in the last 5-10 years, you most likely have a low interest rate.
The answer may be different for someone approaching retirement. Typically as a person gets closer to retirement, they begin to invest more conservatively, so paying off the mortgage becomes a lot more attractive, Carlson said.
And by reducing their monthly expenses, they might be able to put off taking money out of retirement accounts.