Does this calculation change if you have other substantial deductions already? Like if I'm already itemizing because of large charitable contributions and state taxes?

If you're already itemizing due to other substantial deductions, then the mortgage interest would provide some additional tax benefit, but the math still typically doesn't favor keeping a mortgage just for tax purposes. Let's say you already have $25,000 in itemized deductions from charitable giving and state taxes. Adding $10,000 in mortgage interest would increase your itemized deductions to $35,000, which is $7,300 more than the standard deduction for married filing jointly. At your 24% tax bracket, that additional $7,300 in deductions would save you about $1,752 in taxes. But you're still paying $10,000 in interest to get that $1,752 benefit - a net loss of $8,248. The mortgage is still costing you significantly more than you're saving in taxes.

This makes so much sense when you explain it that way. My parents have always told me never to pay off the mortgage early because of taxes, but they bought their house in the 70s when everything was different! Thank u for clearing this up!

Another accountant here - can confirm this is 100% correct. I see this misconception ALL THE TIME with clients. Being debt-free is almost always better than paying interest for a partial tax deduction. The only exception might be if you're investing the difference at a higher return, but that's a risk/reward discussion, not a tax one.

Don't forget student loan interest! That can be a significant deduction for many people making around $65k and can result in very different refund amounts between otherwise similar tax situations.

That's a great point! Student loan interest deductions can reduce taxable income by up to $2,500 in 2024, which could easily account for several hundred dollars in tax differences. Other factors I didn't mention that could cause refund differences include charitable donations if someone itemizes, medical expenses over 7.5% of AGI, and whether someone qualifies for education credits like the Lifetime Learning Credit or American Opportunity Credit.

I did this last year and it backfired. Updated my W-4 to get more in each check but didn't calculate correctly. Ended up owing $800 at tax time which I wasn't prepared for. If you're going to adjust, use the IRS withholding calculator on their website to be precise. Don't just guess like I did.

I see this happening a lot actually. The coding on 1099-Cs is often wrong! Another common mistake is using Code B (insolvency) when it should be Code A (bankruptcy) or vice versa. Always double-check these forms because the codes determine how you'll need to complete Form 982.

Do you need to keep receipts for absolutely everything? I'm terrible at organizing that stuff and end up with a shoebox full of random papers every year.

Yes, you should keep receipts for everything business-related. The IRS recommends keeping records for at least 3 years after you file. I used to do the shoebox method too but now I just use a simple app that lets me take pictures of receipts. Also started using a separate credit card just for business purchases which makes it way easier at tax time. Digital receipts can be saved in a dedicated email folder - as long as they show the date, amount, and what was purchased, they count as valid documentation.

There's a lot of confusion about this. An LLC is just a legal structure, not a tax classification. By default, a single-member LLC is treated as a "disregarded entity" for tax purposes, meaning you still report business income on your personal tax return and pay self-employment tax. Your cousin with an S-corp is doing something different. An S-corporation allows you to be both an owner AND an employee. You pay yourself a reasonable salary (which has payroll taxes) and can take additional money as distributions (which avoid self-employment tax). But S-corps require more formalities like payroll processing, separate tax returns, etc. Usually not worth it until you're making at least $40-50k in profit.

ohh that makes sense. everyone acts like LLCs are some magic tax saving thing but sounds like they're really just for legal protection? thanks for explaining!

What if they don't know what the fair market value was when they started renting it? Is there a way to figure that out after the fact? My property was inherited so I have no idea what it was worth when I started renting it out 8 years ago.

You can establish the fair market value retroactively. One approach is to look at comparable sales in the same neighborhood around that time period. Real estate websites sometimes have historical data, or you could ask a realtor to help with a retroactive market analysis. You could also check property tax assessments from that year, though these are often lower than actual market values. Typically you'd take the assessed value and apply a multiplier based on your county's assessment ratio. Another option is to get a professional retroactive appraisal. Some appraisers specialize in this. It costs money but provides good documentation if you're ever audited.

How did you calculate the land value portion? That's the part I'm stuck on with my rental. I know you can't depreciate the land, but I'm not sure how to determine what percentage is land vs building.