OK, it is time to fight. I am sure this will cause some anger, and possibly a heated exchange or two. But yes, I do think some accountants don’t live in the real world. They live in a fantasy tax world where taxes and tax decisions are the sole determining factor in all of the life decisions they encounter. I can see it now, when told by clients who were expecting a child, an accountant having a stern response around the costs and tax implications of said child. Want to get married? Better consider the tax ramifications first! And one of my all time favorites related to housing, is that accountants do not want clients to give up their mortgage and lose their tax write-off. Why? They have no logic, and do not think out the whole life cycle of debt and finances for the client. They only think inside of their fantasy tax world, where all decisions are based on taxes.
My own father once told me, “my accountant said that I should buy the biggest and most expensive house I can afford, because I need the tax write-off.” That was the biggest pile of horse droppings I had ever heard! And this advice from a professional accountant! Who went to school and everything! And then there is the below doozy from a client who called me recently to refinance:
“Yes, I believe we started at $291,000; and we’re now at just under $269,000. I would rather not do a 10 Year Fixed mortgage and take on a higher monthly payment, but I’d like to not start over my current 15 Year Fixed mortgage either, that I have been paying on for 2 years. I have definitely entertained dreams of paying off the mortgage, but just attended a seminar in which a financial planner cautioned us against giving up the mortgage interest deduction as a tax planning strategy. Your thoughts on the subject?”
Oh yes, I have thoughts. I think financial planners want more of your money to invest, so they get itchy when you want to put it elsewhere, like paying off your mortgage more quickly. I think accountants who only think in terms of taxes and not real life are not thinking clearly. Here is the real life answer that any thinking, honest financial planner would agree with, “you don’t pay $1 to get a tax break of .30 cents, if you can avoid it.” Period. You are still out 70 cents, after the 30 cent tax break. That is irrefutable logic. Why an accountant says to keep a mortgage to keep a 30% tax break, when you are still out 70%, I have no idea. If you have to have a mortgage, great, its great that we all get to write-off the mortgage interest. But if you have the desire to get out of debt more quickly, or have a windfall of cash that you can use to pay off your mortgage, then do so.
In other words, just because you may be in a certain tax bracket that allows you to write off 30% of your mortgage interest debt, you still have a net cost of the other 70%! So where is the gain? If you can pay off your mortgage, then pay it off! If you want to take a 15 year mortgage instead of a 30 year mortgage to get out of debt more quickly, do it! There is no better money savings than not having debt at all. I don’t care what any accountant or financial planner tells you.