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I have the cash to pay off a rental property but we will be selling it this year. From a tax liability standpoint, would it be better to continue to pay the monthly mortgage until we sell it?
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Your gain is the difference between the selling price and the purchase price, and has nothing to do with the amount of any outstanding loan. There are several factors that affect the amount of capital gains tax you might or might not pay when selling your personal home, but paying off the loan has nothing to do with it.
Your gain is the difference between the selling price and the purchase price, and has nothing to do with the amount of any outstanding loan. There are several factors that affect the amount of capital gains tax you might or might not pay when selling your personal home, but paying off the loan has nothing to do with it.
if you have the cash to pay off the mortgage consider this.
what rate do you earn on the money?
what is the interest rate on the mortgage?
consider this example
say you have $100,000 in an interest bearing account earning 2.4% per year - $200 per month
say your mortgage is $100,000 with 3% interest rate - $250 per month in interest + principal
so each month your out of pocket about $50 (net interest) + the principal you pay less the eventual tax savings on the net interest
in this example if you pay off the mortgage you pay more in taxes (mortgage interest deduction reduced but also interest income reduced - taxable income increase $50/month) but end up with more cash in your pocket - the $50/month in net interest savings less the taxes
.
if you continue paying the mortgage until sale, you'll get back the principal payments you've made because the mortgage payoff would be less
do your own calculations to see which puts more money in your pocket. remember that the mortgage balance has nothing to do in computing the gain
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