When Good Tax Planning and Good Financial Planning Collide

An investment that pays 4 percent interest would need $270,000 to cover the payment with one problem: the IRS sits between the interest income and the mortgage payment. Using the same marginal tax rate, the client nets 2.68 percent in after-tax dollars. The client really needs $403,000 of assets dedicated to pay a $200,000 mortgage. They get a small rebate on the tax return, but they still have to spend a dollar to get the deduction. It would make more sense to eliminate the mortgage and have $203,000 invested instead.

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