Today, 63 percent of American households hold some type of mortgage. Part of this reflects Uncle Sam’s past encouragement. The government encouraged home ownership for years by letting households deduct mortgage interest payments as well as property taxes on their federal income taxes. State income taxes, most of which piggy back on the federal income tax return, have generally done the same.
Thanks to these and other TCJA provisions, the share of household that is actually itemizing their deduction and, thus, taking advantage of the mortgage interest deduction is projected to shrink to roughly 10 percent.Truth is, mortgages have always constituted a bad financial move and, at most, a tax wash. On the financial side, taking out a mortgage means borrowing at a safe rate, i.e. short of losing your house, you have to repay. But the safe borrowing rate is higher than the lending rate.
Yes, not everyone who takes out a mortgage to invest will invest in a bonds of equal risk and maturity. Some may borrow to invest, say, in the stock market. But once we risk-adjust the return on stocks or, for that matter, any other investment, we get back to the same answer — mortgages are major financial losers and can have offsetting tax burdens. This is also true for the vast majority of people who take out mortgages not to invest, but to buy a house. For them, there’s no option.
Last Thanksgiving, Jack’s uncle, Jim, who is badly out of date on the tax code, advised Jack to take out a mortgage and invest the proceeds to reap"sizable" mortgage-tax benefits. Jack’s uncle suggests the couple borrow 80 percent on their house for 30 years and invest the proceeds in 30-year Treasury bonds. Jack likes the idea and is eager to proceed. But Sue is skeptical.
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