Your Mortgage Interest Deduction is Worthless (Probably)

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March 23, 2021

Video Summary

The home mortgage deduction has been a topic of discussion in the personal finance community, with some advocating for its benefits, while others claim it is not as valuable as commonly believed. This article examines the reasoning behind the home mortgage deduction and why it may not be as beneficial as some think.

The majority of Americans take the standard deduction, with less than 10% of individuals having enough itemized deductions to claim a larger itemized deduction amount. The standard deduction has been raised to $25,000 for married couples and $12,550 for single individuals, making it more beneficial for many to take the standard deduction.

The marginal tax bracket system increases taxes as income increases, with higher-income individuals paying higher tax rates. In a married couple’s scenario, the tax brackets double, making it unlikely to reach the 22% or 24% tax bracket. Even if an individual’s taxable income is $100,000, they would pay 11.4% of their taxable income, not 22% as some claim.

Furthermore, the home mortgage deduction is not a tax credit, which saves money on taxes, but a tax deduction that reduces taxable income. The math doesn’t add up for most individuals to take advantage of the mortgage deduction, with less than 10% of Americans having enough itemized deductions to claim a larger itemized deduction amount.

The article concludes that it’s simply not beneficial for most individuals to keep a mortgage just to keep a tax deduction, even if they can’t pay off the mortgage. By understanding how taxes work, individuals can make informed decisions about their financial situation and prioritize their goals and priorities.