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Updated almost 11 years ago, 03/25/2014
Paying off loans - interest deduction vs income taxes
So I have seen a few posts recently with people saying it is not a good idea to work to pay off your loans quicker. The argument is that you will lose the interest deduction therefor will need to pay additional taxes. Maybe I am missing something.....
Right now my loans will cost me $360,000 over 30 years if I make just the payments. The annual cash flow ($29,160) over 30 years is $874,800 so at a 25% tax I would pay $218,700 in taxes
So the interest and taxes would cost me $578,700 over 30 years
If I applied the cash flow every month to the payment it would take me 13 years to pay off the loan and it would cost me $102,000 in interest. So for 13 years I would be taxed on the cash flow ($29,160) and pay $94,770 in taxes at 25% and for 17 years I would be taxed on the cash flow minus payments ($67,920) and pay $288,660 in taxes at 25%
So the interest and taxes would cost me $485,430 over 30 years
So I would save $93k by paying off my loan early. Am I missing something? I don't understand while people say don't pay off your loans as fast as possible.
- Brie Schmidt
- Podcast Guest on Show #132