Originally Posted by fx2
Not a great way to look at it. If you get a 40% tax deduction (probably on the high side as most people pay less than 20%) you are still paying the bank $.60 on each dollar you pay in interest.
We financed ours because we were getting much higher returns in brokerage accounts (and still are) that the interest was significantly less than what we are making on the money. Now if that money was sitting in a CD making less than 1% and I was paying 5% interest than I'd definitely had paid cash for the unit.
Glad someone brought this up; a whopping 70% of American households do not itemize at all so the mortgage interest deduction is useless to them.
They will pay 100% of their mortgage interest.
Of the remaining 30%:
4% are in the Zero Percent tax bracket and write off 100% of their mortgage interest because after topline deductions (Oil Rig write downs, etc), they have very little taxable income left to tax.
8.8% are in the 10% tax rate and can write off 10 cents on the dollar of interest.
39.6% (of the 30%) can write off 15 cents on every dollar in interest.
32,7% (of the 30%) can write off a quarter (25 cents on the dollar of interest).
IF you do itemize, AND you MUST finance your home and/or your RV, a 10 to 25% assist from the government (meaning the rest of the taxpayers). is better than a poke in the eye.
Only the top 5% of Americans REALLY benefit from this deduction (35% of a million dollars in interest for example). For most of us, if we can get a clip of a few hundred bucks; its a big deal.
If you own your own home free and clear, have it more than 25% paid off (after 25% your payment is mostly principle), or rent, financing "to write off interest" is a big mistake, IMO.
Who Itemizes Deductions? | Urban Institute
In fact, it is even worse than that, because you still don't make a dime until your total deductions exceed the standard deduction ($6,300 Single or $12,600 Married filing jointly). Since due to the deduction "floors", most of us only HAVE interest and Real Estate taxes to deduct. So you would only get the benefit of the part of interest that exceeds that "floor" (you would have gotten the rest and the taxes anyway in the standard deduction).
IE (Married Joint Return) You pay $2,000 in Taxes and your Home Interest is $6,000, your RV's interest is $1,000; You can write off NOTHING as you take the standard.
You pay $3,000 in Taxes and your Home Interest is $8,000, your RV's interest is $2,000; You can write off $13,000 MINUS the Standard ($12,600) leaving 400 bucks of deductions "to the good"
If you are in the 20% tax bracket, you "get back" 80 bucks refund BUT you paid 2 GRAND in interest on your RV.