The Mortgage Interest Deduction Farce

house irs mortgage interest

“Buy a house” they said. “You’ll be able to deduct the mortgage interest” they said. Probably one of the greatest lies ever told, and possibly a lie you believed.

This is how many prospective homeowners think about things:

  • Buy a house.
  • Pay mortgage interest.
  • Deduct said mortgage interest from taxes.
  • Convince yourself this is an amazing benefit.
  • Tell people who don’t have mortgage interest they suck at being awesome.

The reason I love personal finance is because of it’s inherent objective nature. One can’t say they are financially stable if they have significantly more money going out each month than they are bringing in. Subjectivity is limited when it comes to cold, hard numbers. Let’s look at the mortgage interest deduction from an OBJECTIVE stance.

Let’s pretend Girl Ninja and I buy a $350,000 house tomorrow. We put 20% down and get a 3.75% interest rate on our loan. Wanna know how much mortgage interest we pay in the first year? About $10,300. Sure we could deduct that amount from our taxes, but why would we? The standard deduction we get is already $12,200. Oh, and don’t forget as each year passes the amount of mortgage interest you pay DECREASES which means your mortgage deduction benefit DECREASES. What a great deal, right? Hahaha!

So what does all this mean? It means the mortgage interest deduction benefit (if you can call it that) is essentially worthless. The numbers don’t lie. Only 25% of tax filers actually include the Mortgage interest deduction on their annual taxes. Or in other words, most people DON’T realize any benefit from having mortgage interest.

Obviously if you donate 10’s of thousands of dollars each year, or if you buy a million dollar home, you will get a benefit from the deduction, but that is not the case for most people, and probably wont be the case for you.

I’m not saying you shouldn’t buy a house. Just don’t let stupid people try to convince you that mortgage interest is a “perk” to homeownership.

p.s. Here is a video of me not sticking the landing after skiing off a small rock yesterday. Ninja skiing.

 

Random Question

Meet Johnny…

Johnny makes $100,000 a year. He has decided to put $6,667 in to his 401K each year. This would  mean Johnny saves 6.67% for retirement.

Johnny’s friend, Deborah doesn’t have a 401k plan at her work. Deborah also makes $100,000 a year. Deborah decides she will put money in to a Roth IRA to build up her retirement nest egg. She throws $5,000 in to her Roth. Deborah is saving 5% of her income for retirement.

Now on to the discussion… 

Johnny’s $6,667 pre-tax contribution is the EXACT same as Deborah’s $5,000 post tax contribution (assuming they both are in 25% tax bracket). But would we say Johnny is investing 6.67% and Deborah only 5%?

This is something I never thought about before, but today I woke up and was like “WHOA!!!”. Have you ever considered calculating the PRE TAX percentage of your POST TAX contribution?

Thoughts? 

Would you do it.

Would you take out  a 0% loan for something you were already going to buy? 

If so, why?

If no, why not?

Discuss.

How do you eat?

Girl Ninja and I have come to the cruel realization it costs a lot of money to fill our stomachs. The two of us drop about $600/month on groceries and dining out related expenses. While most PF bloggers would be looking for a way to cut that cost in half, we aren’t.

We like cooking new things, we LOVE going out to eat with friends, and we thoroughly enjoy spoiling our high school kids with snacks when they come over a few times a week. If we wanted to cut our food bill in half, something would have to give.

Frick that.

It will be a cold day in hell before I turn down a dinner with great friends just so I can put an extra $30 in savings account.

Since everyone is different (some of you probably spend more, many of you probably spend less), I thought it would be cool if we all posted what the week ahead looked like for our stomachs. College students I imagine have a lot of Starbucks, Mac n Cheese, and PBJ on the menu (I know I did). Business folks who travel probably have a week of restaurants lined up. We’re all different people, in different stages of life.

Here’s snapshot of the Ninja itinerary:

  • Monday: Tomato Soup and Grilled Cheese (we always try to throw one “cheap” meal in a week). Following this with FroYo with friends.
  • Tuesday: Spaghetti (unfortunately this isn’t cheap since we put a ton of fresh vegetables and ground turkey in the sauce).
  • Wednesday: Shoyu chicken. All sorts of weird ingredients we don’t keep on hand (scallions and ginger), but so delicious.
  • Thursday: Chicken Fettuccine Alfredo. Made from scratch. Where it lacks in health, it makes up for in deliciousness.
  • Friday: Autumn Salad. Girl Ninja has a salad for each season. I kind of hate having salad be my main course for dinner because I have to eat like 8 plates before I feel full. This salad is freaking bomb dot com though.
  • Saturday and Sunday: No freaking clue. We always leave our meals open on the weekends so we can dine out with friends if possible. Otherwise we typically do fend for yourself type dinners at home (cereal, PBJ, omelette, etc).

So there ya have it, this weeks “meal plan” brought to you by my lovely wife. What are you eating this week?

DC bound

Writing this blog post from the shuttle van that is taking me to the airport. The other people in the van are wondering why I’m on my phone at 5am. They’ll just have to keep on wondering….haha.

I’m on my way to DC for a short business trip through Friday. As I always ask when I travel, I’d love some recommendations on things to see and places to eat. With so much going on in the city, and most of my time taken up by work, I’d love it if you literally just left me your top one or two things. If you tell me 20 things I’ll get overwhelmed and do nothing 😉

I’ll catch up with y’all tomorrow.

***update**** I just volunteered myself for a “bump”. I get in four hours later than planned, but I got a $400 voucher out of the deal.

p.s. I’ve always thought it was weird when people say “Fly safe.” As though I have any control over the matter.

Well that was kind of awesome.

Two days ago I mentioned I was amongst the top ten contenders being considered for the “People’s Choice Award” at this years personal finance bloggers conference. At the time of the post I didn’t stand a chance; I was at the bottom of the list. But guess freaking what!!!!!

WE WON!!!!!!

That’s right peeps, we straight up hijacked the category and I went from 8th place to winner in a little over 24 hours.

After winning I tweeted a very sentimental message.

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Seriously though. You guys are pretty awesome for taking the time out of your day to show me some love. I’d say something nice like “I’ll buy you all a round of drinks”, but that would be a lie because a) I am probably never going to meet you AND b) even if we did meet, I’m too cheap to buy you a drink.

On an unrelated note, I found out yesterday that I can give y’all details on our upcoming TV appearance. If you want to see me and Girl Ninja be interviewed on NBC you need to tune in to the Steve Harvey show (I think it’s on same channel as Ellen, just before her show) on Monday at 2pm CT. You’ll have to check your local listings though to make sure of its air time.

I’m pretty nervous to see it. We were on stage for about 35 minutes, but we know the segment is only going to last 12 min. That means they are going to cut out half of what we talked about, and as we are all aware, TV editing can make someone look awesome or like a total douche. Really hoping its more awesome and less douchey but I’ll find out when you guys do.

Anywho, thanks so much for supporting the site and making me feel important. Just when I think about hanging up the towel y’all give me a reason to want to keep writing.

Hugs not drugs,
Ninja

p.s. my first thought flying in to Denver was “Meh.”

NBC!!!

Once we get approval to tell you about the shows air time we will!!!!!!

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