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Help with a payoff decision
Old 07-15-2015, 06:15 AM   #1
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Help with a payoff decision

I need help in deciding whether one mortgage payoff is more advantageous over another:
I have two mortgages, each for the same amount. One is on a primary residence and the other is on an investment property (rental). I expect to come into enough cash to pay one of them off but I'm unsure as to whether paying the rental off would be better than paying off the primary residence? Both rates are close; within 1/4 of a percent.

Are there tax advantages to holding one over the other? I currently deduct interest paid on my primary residence and interest as a business expense on the rental. I'm wondering whether, if I pay off the rental and give up the interest expense, there by generating "more profit", if I wouldn't be losing ground somehow?
I plan to aggressively payoff the second mortgage with the increased cash flow generated by the first payoff, in order to prepare for FIRE launch in 2017.

Maybe one of you nice folks can help steer me straight. thanks in advance.
Emi guy
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Old 07-15-2015, 06:41 AM   #2
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Originally Posted by emi guy View Post
I plan to aggressively payoff the second mortgage with the increased cash flow generated by the first payoff, in order to prepare for FIRE launch in 2017.
Emi guy
Some would say it may be good to keep mortgages if they are good rates as we are at some of the lowest ever, but looks like you've decided the goal is to eliminate both.
The interest of your primary residence is only deductible to the extent your itemized deductions exceed your standard deduction. If you are high enough in income, your itemized deductions may be limited. So you need to look at your present taxes and after you retire.
The interest on the rental is written off the income from the rental, thus direct deduction and not limited by the amount it exceeds the standard deduction or limited by deduction limits.

So, where are your taxes now in in ER? got estimates?
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Old 07-15-2015, 07:11 AM   #3
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Ah ha! And that's why I ask the forum. Good points. I'll have to run it by my tax guy. Thanks.
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Old 07-15-2015, 07:31 AM   #4
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One way to test which alternative is best might be to take your 2014 tax return or estimated 2015 tax return and eliminate each interest deduction separately as if you paid of the mortgage and see if one has a bigger increase in tax.

Unless your itemized deductions excluding home mortgage interest is less than the standard deduction or your itemized deduction is subject to phase-out I wouldn't think there would be much of a difference.
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Old 07-15-2015, 07:43 AM   #5
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One way to test which alternative is best might be to take your 2014 tax return or estimated 2015 tax return and eliminate each interest deduction separately as if you paid of the mortgage and see if one has a bigger increase in tax.

Unless your itemized deductions excluding home mortgage interest is less than the standard deduction or your itemized deduction is subject to phase-out I wouldn't think there would be much of a difference.
I would agree, but the real question is what it looks 2017. I would expect that paying off PR is better considering taxes after FIRE.... this assumes lower itemized deductions... in my case state and local taxes are reduced.

At least the OP did not ask if it was better to keep the mortgages and invest instead... many FA are recommending this. It may be good financially to use this low cost leverage, but plays more on what the person feels more comfortable with.
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Old 07-15-2015, 08:20 AM   #6
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Agree... it would make sense to look at it in the year of action and one or more subsequent years.
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Old 07-16-2015, 11:14 AM   #7
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If your projected cash flow is under control, then it would appear taxes are the key to your decision. Good luck and YMMV.
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