Paying off your mortgage could be the smartest investment you make in the coming year, according to a column recently published by MarketWatch.
Getting rid of your mortgage and other debt has long been touted as a smart way to build long-term wealth. Due to the recent changes in federal tax law, however, 2018 may be an ideal time to focus on paying down your debt not only to build wealth, but also to lighten your tax load.
The new tax code eliminated a number of personal exemptions, instead nearly doubling the size of the standard deduction. For the 2018 tax year, the standard deduction will be $24,000 for married couples filing jointly, $18,000 for heads of households, and $12,000 for single filers. Those who file taxes will be able to deduct only $10,000 of their state and local taxes, including property taxes, starting in 2019.
For many married joint filers who own or are working to own their own home, the standard deduction will be the better bet. When other allowable deductions don’t exceed the $24,000 standard deduction, taking the standard deduction instead of itemizing saves both time and money.
Even when itemized deductions add up to more than the standard deduction, the tax savings represented by paying mortgage interest will drop sharply, making it a better idea to simply pay off the mortgage – thus eliminating that particular monthly cost – and to put the money once spent on your mortgage toward other forms of saving or investment.
In addition, the gains from buying certain types of investments, such as bonds, are projected to be lower than the gains realized by paying down debt. While continuing to put money in a 401(k) or other vehicle for retirement is wise, weighing the value of paying off your mortgage sooner versus investing additional money can help you make a more informed decision in the face of changing tax law and market uncertainties.
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