A reason often given for not paying off your mortgage or student loans is that you get a tax break by having them. However, just having a mortgage or a student loan and paying thousands of dolllars in interest on them doesn’t guarantee you a tax break. Whether or not you get a deduction for them depends on several factors.
For example, here are some figures based on our tax return:
Mortgage interest paid: $6291
Amount deductible: $0, because we were better off taking the standard deduction.
Student loan interest paid: $421
Amount deductible: $249
In other words, we paid $6712 in interest for a total savings of $249. Not my idea of a bargain. Of course, if we’d had a huge mortgage and paid enough in interest that combined with other deductible items it put us over the amount for the standard deduction, it might have been a different story. I still don’t like the idea of paying lots of money to pay slightly less elsewhere, but it would pay to run the numbers for your particular situation. It’s just a myth that buying a house or carrying a student loan will always save you money on your taxes.