I read something recently that year one of a 750k mortgage would net you 17k on an average interest rate in tax deductions? Can anyone verify this or share similar experience? The reason I ask is that it seems if one had the cash to buy a 1MM home in Bay Area it would be better to mortgage 750k of it. Or am i missing something?
I like to have cash
You are losing standard deductable and need to go itemized on your return.
The problem is you have to pay more if you are not an all cash buyer. As a seller, I would prefer $1.7m all cash = $1.8m zero contingency = $2m 1week contingency
A 750K mortgage @4.25% gives 31K interest during the first year. Then, it decreases every year. 31K in interest is worth $10,850 assuming a 35% tax rate. But even that is too high. Because a married couple could have $24,000 in basic deductions that is foregone when itemizing. Let's assume you have $31,000 in interest, $10,000 in property tax and $2000 in other itemizeable expenses. So (31,000+10,000+2,000-24,000)*.35 = $6650. It's really not worth that much!
This is pretty accurate.
^this, it makes no sense to buy a house for tax purposes
Why would someone want to pay 35k to save 11k? That's a loss of 24k
There are other things to consider and weigh. The main benefit is tax deduction. If that is most important to you then this might be helpful strategy.
It’s scary that there are people who can afford seven digit homes (or at least borrow for it) and yet can’t do simple math. The new tax plan really throws a wrench into the traditional tax benefits of a mortgage. Cali homeowners are in for a rude awakening in 2019 I guess.
Can't you afford it too since you are working at Google?
Don’t forget that TCJA has capped mortgage deduction and home equity on all new debt. Your fancy new house is now a little pricier.
Pretty sure you’re capped at 10k SALT deductions under next years tax code
It is better to mortgage. Mortgage interest rates are less than compared to the returns you get even by investing in index funds. Also the tax benefits is something to consider very seriously. 750k in mortgage saves you around 15k an year. Also the risk is always with the bank who owns most of the home.