# Is It a Good Idea to Keep a Mortgage for the Tax Benefit?

Tonya asks why Dave tells people to pay off their houses instead of using it as a tax write-off. Dave explains.

QUESTION: Tonya on Facebook asks why Dave tells people to pay off their houses instead of using it as a tax write-off. Dave explains.

ANSWER: Let’s do some quick math. Let’s pretend you had a \$200,000 mortgage at 5% interest. Five percent of \$200,000 is \$10,000, which means if you have a 5% mortgage on \$200,000, you pay \$10,000 in interest to the bank. If you make \$75,000 a year, you’re in a 25% tax bracket. You’re able to deduct that interest—the tax write-off. The reason everyone keeps their mortgage is because they’re sophisticated and want to keep the tax write-off. “You don’t want to pay off your mortgage. You’ll lose the tax write-off!” How many times have you heard that bunch of crap?

Let’s play with this for just a second. If you make \$75,000 a year and you have a \$10,000 tax write-off, that means you pay taxes not on \$75,000 but on \$65,000. If you paid off your home mortgage, you would have to pay taxes on not \$65,000 but \$75,000 because you wouldn’t be paying any interest anymore. You’re going to have to pay taxes on \$10,000 worth of income. You’re in a 25% tax bracket. Twenty-five percent of \$10,000 is \$2,500. Your tax bill just went up by \$2,500 because you paid off your mortgage. Did I mention that you’re no longer sending \$10,000 to the mortgage company? Your tax bill went up by \$2,500, but your interest bill went down by \$10,000. Did you get this?

What these idiots are saying all over America is that you need to keep your tax deduction—and you’re an idiot if you believe that. You’re sending \$10,000 to the mortgage company to keep from sending the federal government \$2,500. Calling that sophisticated would make you an idiot. I’ve been that idiot. I used to tell people to do that all the time, and then I got called out on it. Then I went, “I was completely an idiot.” That’s wrong. You don’t send Countrywide \$10,000 to keep from sending the IRS \$2,500 and call that sophisticated. It’s not sophisticated; it’s stupid.

That’s why I say pay off the house versus the tax deduction. If you want to trade \$10,000 for \$2,500, you can do that without being in debt. Just increase your giving to a 501(c)3—your church or the Red Cross or whatever. Pay off your mortgage, give \$10,000 extra in charitable giving, and your tax bill will not go up one penny. You’ll save the \$2,500 in taxes by giving away the \$10,000. Your charitable giving is tax-deductible.

We do not stay in debt because of the tax deduction. If you’re in debt, take the tax deduction, but don’t stay in debt because you’re somehow sophisticated.

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## Tax Pro or File Your Own?

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## Tax Pro or File Your Own?

Use this free quiz to help you decide which tax filing method is right for you.

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## Get A Tax Pro Who Dave Trusts

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## Get A Tax Pro Who Dave Trusts

Take back your hard-earned cash and pay the IRS only what you have to. Work with a Ramsey tax pro.

Find a Tax Pro