Will Paying Off Your House Mean Higher Taxes? - Dave Ramsey Rant

maritza is in Maryland and says Dave my husband and I are on our way to being debt-free whoo we took your class earlier this year remember you're saying to pay off the house last when I talk to people about paying off my house they say it's not a good idea speaking of themselves because of being placed in another tax bracket and having to pay high taxes is this so well or it's a one rule is don't take financial advice from broke people or dying at dieting advice from fat people so they said and I heard are the worst financial planning firm out there now let's talk about why okay number one under the current tax code enacted two years ago a married couple has a $24,000 standard deduction that means unless your write offs on your house house interest and your charitable giving and other write-offs that you have exceed $24,000 you will likely take the standard deduction on your taxes now before that that's a trump enacted tax law it increased the standard deduction by double the amount that you can take as a standard deduction if you don't have write-offs in excess of that you would take that now before that eighty percent of Americans did not itemize meaning they took the standard deduction now the standard deduction in the last two years has doubled translation almost no one it's going to be under well under 10% of Americans probably under 5% of Americans will actually itemize on their taxes you have to run a small business or make incredible interest payments or incredible charitable giving to bother to itemize because your standard deduction is so freaking big translation almost no one actually takes the tax deduction on their house because they take the standard deduction so this is complete BS it's all theory and it's all somebody talking over the Thanksgiving dinner that has no freaking idea what they're saying because they haven't ever taken a standard had never done an itemized tax return they take standard deduction every year and they look at you and say but I'm not paying off my house because I'll lose the tax deduction which they didn't get the tax deduction but they're too moronic to actually understand how this really works and they're giving you advice so let's say that you are one of the very few people that actually does take the tax deduction on your house let's run some numbers everybody get your calculator ready here we go let's pretend you out of $200,000 mortgage I make it easy at 5% 5% of 200,000 is $10,000 does that sound right everybody say yes that means if you had a $10,000 interest payment you paid that year if you're one of the few unicorns that actually does do an itemized demise tax return and does take the deduction on your interest rate on your home you didn't take the standard deduction you're one of the few that means you would actually have a $10,000 tax deduction because you paid the mortgage company $10,000 in interest is that correct everybody say yes and so what that means is not that you take $10,000 off of your taxes it means that you reduce your taxable income by $10,000 so instead of being taxed on 80,000 your text on 70,000 which means not that you saved $10,000 on your taxes it means you saved your tax rate on the $10,000 and so let's walk back through that let's pretend this is a couple making 80,000 bucks a year putting a twenty two percent tax bracket if you're a twenty two percent tax bracket and you have a ten thousand dollar tax write-off that saves you $2,200 on your taxes if you're one of the handful of people who actually itemize and almost no one does have I said that before so what you did if you follow your genius friends suggestions is you send countrywide mortgage $10,000 because you did God forbid you'd pay off your mortgage and lose the tax deduction so you sing countrywide mortgage $10,000 why so that you could keep from sending the government two thousand two hundred people who trade ten thousand four two thousand two hundred are not called sophisticated people these are called morons don't trade 10,000 for two hundred two thousand two hundred dollars it's a bad trait trading the dollar for a quarter is a bad idea and so when you keep a tax deduction in order for the opportunity to give someone money in order to save a quarter and you give someone a dollar in order to save a quarter you're not sophisticated your math challenged and if your CPA is stupid enough in a few of them are to tell you to keep your mortgage because of your tax deduction a CPA that can't add is not a good one get a new CPA use these two words you're fired and don't listen to people who have theories that don't exist in the real freaking world and when you do actually put the nominal facts and mathematics to the theory it makes you look ridiculous now when I first got in the real estate business I was stupid I was 18 years old and you know what they told us they told us to get everybody's bigger mortgages we could get them because they get the tax deduction and you know what I told everybody the same stupid thing everybody tells everybody get you a big ol mortgage because you get the tax deduction now certain times in the last 40 years that I've had my real estate license that's been more true than others of the tax you actually did get the tax deduction the irony of this is one more time I'll repeat less than 5% of Americans are actually going to get the tax deduction on their mortgage interest and yet everyone keeps their stupid mortgage because they're broke brother-in-law who has an opinion tells them that they need to keep their mortgage because anybody buddy knows you don't pay off your mortgage because of the tax deduction that you never get and if you do get it you're trading a dollar for a quarter y'all getting hot done this is this is dumb this is seriously dumb so maritza in Maryland the moral of the story is hey don't listen to broke people of our money be pay off your mortgage as soon as possible oh let me give you one other piece of actual data we did the largest study of millionaires ever done for Chris Hogan's book every day millionaires the millionaires that we interviewed had to if they had a net worth of under 5 million dollars 1 million to 5 million which is not bad by the way considering most Americans can't even pay their bills if you have a net worth of between one and five million dollars our in-depth airtight detailed research shows that that typical millionaire has two primary sources of wealth almost every time we talk to one of them it was their 401k and they're paid off home that made them a millionaire so they're sitting on a million and a half net worth with a $500,000 paid for house and a million dollars in their 401k so they're worth a million and a half they got no debt that was a very often that was the ratios that we heard in that research over and over and over and over again so in other words two of the primary places that people get their first 1 to 5 million dollars in their wealth building plan is a paid off home and investing steadily in mutual funds and your retirement plan kinda sounds like what we've been teaching for 30 years around here so that's what you need to do when I talk to people about paying off my house they say it's not a good idea because of being placed in another tax bracket well it's not gonna place you another the tax bracket if you're not taking the tax deduction and another tax bracket does not affect oh by the way we have a marginal tax bracket system do you don't know what that means it means if you're on a 22 percent tax bracket it does not mean you pay twenty two percent of all of your income on taxes it means the last dollar of your income was taxed at 22 percent but you worked your way all the way up through the brackets there's a certain amount that is not taxed at all then there's a mount taxed at 10% no taxed at 15 percent mount taxes 17 percent of Mount Texas so on up until you get the 22 percent so you don't take your income times 22 percent to get your taxes people making $80,000 do not pay 22 percent of their income in taxes they pay about 7 or 8 percent of their income in taxes so but the last dollar that we're talking about so our calculation was correct that you would have saved on that tax deduction would 22% so I gave you the most generous possible analysis in that map and it still gives you a mic drop answer

Channel: The Ramsey Show - Highlights

Views: 602,791

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Keywords: the dave ramsey show, budget money debt cash, real estate, insurance, how to make money, dave ramsey, save, credit card, compound interest, buying house, buy, snowball, Will Paying Off Your House Mean Higher Taxes, mortgage, property taxes, ramsey, debt, dave ramsey baby steps, ramsey solutions, dave ramsey show, taxes, mortgage interest, property tax, home, investing, pay off mortgage early, paying off mortgage early, money, tax, interest

Id: 1XcQhzojti4

Length: 9min 1sec (541 seconds)

Published: Wed Jan 15 2020