What do you use for tax shelter if house is paid off?

[cantdrv55]

Planning ahead. Please let me know what you're using as your main tax shelter. Thanks.

[rwest]

I just don't worry about it, I paid my house off years ago and I could never see the logic of paying a hundred dollars in interest to get back thirty on my taxes. I asked lots of different finacial people after they would all say that if you pay it off you'll lose your tax deduction! Some people get so worked up about giving the "Goverment" any money that they don't think it out, I would much rather give thirty to the people that build my roads then seventy to a bank that will buy their CEO a yacht. The only solid benefit I could figure was that if you had to have a loan, having a house one gets you a tax break, so paying off your house and then getting a car loan would be foolish.

The mental felling of being out of debt is fantastic beyond words.

-Rutager

[fred cook]

One way would be to buy into a municipal bond fund that is federal tax free. The payout (now) is about 4% which grows to around 5% when you figure in no taxes. I'm sure that others will have some ideas on the subject.

[Chocaholic]

Originally Posted by rwest

I just don't worry about it, I paid my house off years ago and I could never see the logic of paying a hundred dollars in interest to get back thirty on my taxes. I asked lots of different finacial people after they would all say that if you pay it off you'll lose your tax deduction! Some people get so worked up about giving the "Goverment" any money that they don't think it out, I would much rather give thirty to the people that build my roads then seventy to a bank that will buy their CEO a yacht. The only solid benefit I could figure was that if you had to have a loan, having a house one gets you a tax break, so paying off your house and then getting a car loan would be foolish.

The mental felling of being out of debt is fantastic beyond words.

-Rutager

If you're paying on a mortgage because it's a tax shelter, re-read the post above. Pay off your house and be glad you're no longer paying interest so that you can deduct a small portion of what you paid.

Ours is paid off and I just bumped up my withholding slightly accordingly. Of course, now we're buying a second home, so here comes the mortgage again .

[GH85Carrera]

I just use some Vaseline.

We have no kids to deduct, no mortgage, and thankfully no major medical bills. Every year I spend the time to enter the property taxes, vehicle taxes, and other little possible deductions. In the end we just take the standard deduction that everyone filing taxes gets. I just pay a lot of taxes and pay and pay. I have never in my life received one penny of direct money or type of assistance of any sort from any government source of any type. I just pay and pay.

[berettafan]

Paying twice the price of your home to a bank in interest is not sheltering your money.

[biosurfer1]

Finally nice to see some people have common financial sense around here. Every once in a while I argue with my sister about her "financial sense" or lack there of. My favorite is how it makes more sense for someone in a marriage not to work because it would bump them into the next tax bracket... here's me when she says that ---> :|

[john70t]

Originally Posted by berettafan

Paying twice the price of your home to a bank in interest is not sheltering your money.

Meaning three times the original home price, or more...

Having personal immunity and unlimited government backing, Manhattan bankers are truly a 'protected class'.

[ckelly78z]

I have my house paid off now, no car payments either, only one 15 year old still living with us, but I do have some sizeable medical bills. It still doesn't come up to the minimum amount for a deduction. I just try to come out about even on April 15......this year, I think we got about $200 back from the state.

[john70t]

Willingly paying a mortgage makes sense if someone has significant expendable income, want to lower net profit to a lower tax bracket, and other types of alternative investments guarantee a yield return of more than 3X over 15-30 years.

That's usually been the case with the stock market but there is also increased volatility risk.
Bonds probably won't stay ahead of inflation.

Meanwhile, RE in desirable areas over decades will keep pace with the market.
Wherever there is people with money, there is competition, and demand.

[LakeCleElum]

Originally Posted by rwest

I just don't worry about it, I paid my house off years ago and I could never see the logic of paying a hundred dollars in interest to get back thirty on my taxes.
-Rutager

I paid off my first house at age 26 and only paid on a loan one year since. Here's what I tell people:

If I gave you $1 back for every $3 you flushed down the toliet, would you do it? I've never had anyone take me up on it.

[Joe Ricard]

Yep, Primary house paid for. Both rentals paid for and rent out for 1000 bones a month each.

I have maxed out my 401 which gets me just under the level so I don't have to pay a penalty at tax time.

[LeeH]

The standard deduction. That's my tax shelter.

I stopped keeping receipts years ago. Could never gather enough to even come close to itemizing.

[Seahawk]

Well stated, John.

To the OP, make sure you have a complete picture of your income and yearly budget needs, tax posture, etc., then the impact of any investments, financial obligations on taxes, life-style and so on.

Numbers don't lie. Get software you are comfortable learning and climb the data mountain, create your financial life in digits so you can then interpret better, figure out where best to invest and the tax implications.

You may already be there.

Two years ago, after doing our very complicated (consulting, business, farm, wife's government income) taxes we ran three different scenarios to lessen our out of pocket tax bill (over 8K), which was my fault since I should have changed withholding rates but did not. Oops.

After looking at the alternatives, we bought a piece of farm equipment we needed, depreciated the gear in one year, and went from owing 8k to a 1k return check...essentially getting the gear for 1/2 price.

Details rule.

Originally Posted by john70t

Willingly paying a mortgage makes sense if someone has significant expendable income, want to lower net profit to a lower tax bracket, and other types of alternative investments guarantee a yield return of more than 3X over 15-30 years.

That's usually been the case with the stock market but there is also increased volatility risk.
Bonds probably won't stay ahead of inflation.

Meanwhile, RE in desirable areas over decades will keep pace with the market.
Wherever there is people with money, there is competition, and demand.

[wdfifteen]

Originally Posted by rwest

I could never see the logic of paying a hundred dollars in interest to get back thirty on my taxes.

+1
Start your own business. There are lots of ways to maximize your tax position if you run a business.

[cantdrv55]

You guys rock! Lots of things to consider. Thanks all.

[john70t]

A couple ways to reduce net income:
1). Max out 401K
2). Max out Roth IRA.
3). College plans for family: IRS Rules for 529 Plans | Finance - Zacks
'The chief benefit of the 529 plan is that earnings on the investments in the plan are not subject to federal taxes, as long as the money is used on eligible college expenses. This advantage allows for the funds in a 529 plan to grow without being drained by taxes.'

Whatever investment you use, I wouldn't put 'all the eggs in one basket'.
-The USD may fluctuate against foreign currencies....good or bad.
-I've heard 'buy and hold' a lot. Day trading only works for the dedicated.
-Local RE is vulnerable to both local politics and global trends.
-Local RE prices always have a ceiling where people and business get ticked off and start moving.

[Hugh R]

I have to file AMT so I can't really write off much.

[DARISC]

Scenario 1:

Say you put 50k down on a house 20 yrs ago, have a 200k mtg. @ 3% and you've paid it down to where you owe 50k.

Since you are paying mostly on the principal at this point, your tax write off is negligible.

Say your 250k house has appreciated over the years you owned it and is now worth 500k.

Say you have the 50k and you pay it off.

You're now sitting on a 500k investment which is paying you nothing, you're paying prop. tax every year, no longer have a tax shelter, but, you no longer have a house payment.

Scenario 2:

Now, say that, instead of paying off the mortgage, you refinance the house for as much as you can get, let's say 400k, for as many years possible, say 30 yrs, at the current rate, say 3.5%.

You're now sitting on a 500k investment which you've just used as leverage to borrow 400k at 3.5%, the payments upon which are 90% interest, all of which you write off as an expense at tax time, and you have 350k to invest which, if done wisely, will yield 7% to 10%.

Why would one not choose Scenario 2?

[dan88911]

Of course everyone has a different situation.
I have not done business with this guy. However, have read some of his books.
Here is his take on home ownership. Figured I would add it to the mix.
The Benefits of Having a Big, Long Mortgage