Robbing Stupid To Pay Dumb

Dave has many reasons why you shouldn't buy something (like a house) to get a tax deduction. Here they are.

QUESTION: Susan and her husband make about $120,000 a year and don’t own a home. Should they take money out of their 401k to purchase a home, in order to get a tax deduction? Dave walks her through the math behind his answer.

ANSWER: I think home ownership is a good thing, but buying a home to get a little tax deduction is mathematically stupid. If you have a $200,000 mortgage at 5%, you would have a $10,000 tax deduction. With your income, you’re in a 35% tax bracket. That means with your income you would pay about $3,500 in taxes. So the math you are working says you should send $10,000 to the bank to keep from sending $3,500 to the government. That’s stupid!

Now, don’t get me wrong. If you have tax deductions, then take them. But don’t buy something just to get a new tax deduction. If you want a deduction, give your church $10,000 and you won’t have to go deeply in debt to get the deduction.