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When I wrote about paying off our rent house, a few people emailed me about the mortgage deduction benefit that we'd be losing.  Luckily, that wasn't ever an issue.  Even with two mortgages, our mortgage interest and other deductions simply never added up to more than the standard deduction (which was $11,900 for a married couple filing jointly last year).

Standard Deductions

 

The Math

Here's the breakdown for us.  The following are the deductions that can taken and what they added up to for us last year (and I rounded up):

  • Medical Bills – $1000 in some copays and medicines (which I am not even sure are deductible)
  • State and Local Taxes like sales tax – less than $2000
  • Charitable Deductions – $500 (I volunteer time)
  • Mortgage Interest – less than $2500
  • Losses from Theft – $0 thankfully
  • Job Expenses like travel – $1000 and that would really be pushing the definition
  • Total = $7000

So in our case, the $11,900 standard deduction was definitely more to our benefit and has been since we got married in 2005.  We always run the numbers just to make sure, but for us, the standard deduction is simply the way to go.

When Itemizing Works

Yet, itemizing is still obviously a great choice for some people.  One of our close friends, J, files as a single individual.  Between her medical bills and her mortgage interest, it was just a smart idea for her to itemize since that total was greater than the $5950 standard deduction that she could have taken.  I also know several couples living along the coasts where housing is more expensive so their mortgage interest is astounding comparably.  The standard deduction would be a bad idea for them.

So I am by no means saying that the standard deduction is for everybody.   I just wanted to remind everyone that mortgage interest is not always tax deductible for everyone.  It isn't automatically a benefit of home ownership or debt.

For us, the biggest decision was whether to pay off debt or invest, so at best, we made a 4.5% return on about $22,000 this past month.  At worst, we have to accept the opportunity cost of anything else we would have done with that money instead.  In the end, I like the guaranteed return and being down to only one main mortgage again.  The feeling of security is worth a bunch to me, but I do have a ton of respect with everyone with a better risk tolerance than me.

Do you take the standard deduction or is itemizing better for you?