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.

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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. Then, you can invest your money into something else that might be more financially beneficial in the long run.

 

"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 property taxes, which is especially useful if you live in a high-tax area. For this reason, it might make sense to invest in another property, even if it means taking on a mortgage. For example, Texas infamously has high property taxes; if you live in a similar state, this tax deduction could end up saving you a ton of money. Of course, this isn’t as good of an option if your property taxes aren’t as much of a financial burden, so consult with an expert before making a final decision.

 

3. Capital gains taxes. When you sell your property, married couples can delay paying up to $500,000 in capital gains taxes 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 putting off capital gains could be worth it.

 

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!