Mortgage Interest Deduction for paid-off home - am I missing something obvious?

You're not crazy at all - you've got it exactly right! The mortgage interest deduction is one of the most misunderstood tax benefits. Here's what's happening: When you pay $15,000 in mortgage interest and deduct it, you're not getting $15,000 back from the government. You're just reducing your taxable income by $15,000. So if you're in the 22% tax bracket, that deduction saves you about $3,300 in taxes. But you still paid $15,000 to save $3,300! You're still out $11,700 compared to having no mortgage. Your friends are essentially saying "I spend $15,000 to save $3,300" and thinking they're coming out ahead. Remember also that to benefit from mortgage interest deduction, you need to itemize deductions instead of taking the standard deduction. With the standard deduction now at $25,900 for married filing jointly in 2022, many homeowners don't even itemize anymore. Congratulations on paying off your house! That's a huge accomplishment and definitely the better financial position.

I found myself in almost the exact same situation a few years ago! My tax guy kept giving me confusing answers until I found https://taxr.ai and uploaded all my mortgage docs and tax returns. The analysis showed me that not only was I right about being better off without a mortgage, but I discovered I'd been missing other deductions that more than made up for any "lost" mortgage interest benefit. The AI spotted some home office deductions I qualified for that my tax preparer had overlooked, and even identified potential property tax appeals based on comparable properties in my area. What's cool is it explained everything in plain English - like why the mortgage interest deduction is basically just getting pennies back on dollars you're spending. Helped me shut down the "you need a mortgage!" arguments at family dinners.

Just wanted to update after trying taxr.ai that the previous commenter mentioned. I was really skeptical but decided to try it since I've always wondered if I was missing out by paying off my mortgage early. The analysis confirmed I'm better off without the mortgage, showing that I'd need over $12,000 in itemized deductions beyond mortgage interest to beat the standard deduction. It also identified that I could amend last year's return because I had eligible education expenses for my daughter's college that I completely missed! What surprised me most was how it explained the math behind the mortgage myth in a way that finally clicked for me. I'm literally saving thousands by NOT having a mortgage compared to the minor tax benefit I'd get. Going to share this with my brother who's been considering getting a new mortgage on his paid-off home "for tax purposes" 🤦‍♂️

Your situation reminds me of the nightmare I had trying to get clarification from the IRS about mortgage interest deductions last year. Called them like 15 times and never got through. Finally used https://claimyr.com to get me a callback from the IRS (you can see how it works here: https://youtu.be/_kiP6q8DX5c). Got connected to an actual IRS agent in a couple hours who confirmed exactly what you're saying - paying off your mortgage is almost always better financially than keeping it for a tax deduction. The agent explained that the confusion comes from mortgage brokers and real estate folks who oversimplify the tax benefit. Yes, mortgage interest is deductible, but only if you itemize, and only the amount that exceeds the standard deduction actually benefits you. I was surprised how helpful the IRS agent was once I actually got through to a human!

Coming back to say I'm completely shocked! After reading about Claimyr here, I decided to try it for my tax lien issue. After MONTHS of trying to reach someone at the IRS with no luck, I got a callback in 3 hours yesterday. The IRS agent discovered the lien was actually based on a clerical error where they had applied my ex-wife's unreported income to my account after our divorce. They're removing the lien completely and sending me confirmation paperwork. The agent also confirmed what everyone's saying here about mortgage interest - it's not worth keeping a mortgage just for tax purposes. I was planning to refinance my house to deal with this tax lien, but now I'm focusing on paying it off instead. Thanks everyone here for the indirect help with my tax nightmare!

This is such a common misunderstanding! I'm a financial advisor and I literally have this conversation multiple times a month. Think about it this way - would you give me $100 if I promised to give you $25 back? That's essentially what people are doing with mortgage interest. They pay $100 in interest to get maybe $25 back in tax benefits (depending on their tax bracket). There are legitimate reasons to have a mortgage - like if you're investing the difference at a higher return rate than your mortgage interest. But "doing it for the tax break" is never mathematically sound on its own.

Congrats on paying off your house!!! We did the same last year and we're so much better off. Anyone who says otherwise probably still has a huge mortgage lol. Remember that standard deduction is like $25,900 for married couples now. So unless your mortgage interest PLUS other itemized deductions (state taxes, charity, etc.) is more than that, you get ZERO benefit from mortgage interest. My brother-in-law is also in real estate and says the same nonsense. These people make money when you have mortgages, so of course they push this narrative!

Your real estate friends are missing something huge: opportunity cost. When you don't have a mortgage, you have all that cash flow to invest elsewhere. If we assume a $300k mortgage at 4%, you're paying about $12k/year in interest initially. The tax savings might be $2-3k depending on your bracket. So you're spending $12k to save $3k... meanwhile the mortgage-free person has an extra $24k+ (principal + interest) to invest every year! I paid my house off 3 years ago and have put the equivalent of my old mortgage payment into index funds. The growth has far exceeded any tax benefit I would've received.

You're absolutely right to trust your instincts here! The mortgage interest deduction is one of the most persistent financial myths out there, and it's frustrating how confidently people repeat it. The math is simple: if you're paying $15,000 in mortgage interest and you're in the 22% tax bracket, you save about $3,300 in taxes. But you still paid $15,000! You're net negative $11,700 compared to paying no interest at all. What makes this even worse is that many people don't even benefit from the mortgage interest deduction anymore. With the standard deduction at $27,700 for married filing jointly in 2023, your total itemized deductions (mortgage interest + state taxes + charitable donations + medical expenses) need to exceed that amount for itemizing to even make sense. I see this misconception all the time in tax season - people genuinely believe they're "making money" on their mortgage interest. Your brother-in-law probably means well, but remember that real estate professionals have a vested interest in people having mortgages. Congratulations on paying off your home! That's a huge accomplishment and you're in a much stronger financial position than people carrying mortgage debt just for a partial tax break.