Skip to main content

HCOL Home ownership: Is the Mortgage "Tax Ceiling" a reason to put higher downpayment

I’m currently house hunting for a townhome in HCOL area in the $1.2M – $1.4M range. Like many, I’ve always operated under the "Standard Rule": Put 20% down to avoid PMI, then keep the rest of your cash in the market (S&P 500) to outpace the mortgage interest, especially since the interest is tax-deductible.

However, I just had a "lightbulb moment" regarding the IRS limits that changes the math significantly.

**The Realization:** The Mortgage Interest Deduction (MID) is capped at **$750k of principal**.

If I buy a $1.2M home with 20% down:

* **Down Payment:** $240k

* **Mortgage:** $960k

* **The "Tax Gap":** $210k of that mortgage receives **zero** tax benefit.

Essentially, I’m paying the full 6.5% interest (or whatever the current rate is) on that top $210k without the "subsidy" of a tax write-off. Meanwhile, my "guaranteed" return on cash in a HYSA is only \~4.5% (pre-tax).

**The Pivot:** I have enough liquidity to potentially put down $460k (roughly 38%) to bring the loan amount exactly to $750k.

**The Question:** Does it make more sense to "overpay" the down payment to hit that $750k sweet spot?

By doing a 38% down payment:

  1. **Guaranteed Return:** I’m effectively getting a guaranteed 6.5% return on that extra $210k by not paying interest on it.
  2. **Tax Efficiency:** 100% of my remaining mortgage interest becomes deductible.
  3. **Cash Flow:** My monthly DTI improves significantly.

**The Trade-off:** I’d have to liquidate some taxable brokerage assets to make this happen.

Am I overthinking the $750k limit, or is this the standard "pro move" for HCOL buyers to avoid holding "expensive" non-deductible debt? Would love to hear from anyone who has run these numbers or chose one path over the other.

**TL;DR:** Should I stick to 20% down and hold a $960k loan, or put \~38% down to cap the loan at the $750k tax-deductible limit?

submitted by /u/Shehbaz_Jaffer
[link] [comments]

source https://www.reddit.com/r/RealEstate/comments/1pxlfe5/hcol_home_ownership_is_the_mortgage_tax_ceiling_a/
Labels:

Comments

Post a Comment

Popular posts from this blog

North Carolina – “One to Buy; Two to Sell”

I realize I will likely have to contact a real estate attorney but also hoping to hear insights and experiences from others! I have a house in NC that I bought by myself in 2009, and paid off, in full, in 2022. I got married in 2023. My spouse and I have not lived in the house as our "marital residence". We have maintained separate residences even after we got married. (That a separate topic!). I am now selling this house. Realtors have told us that my husband has to sign the deed at time of transfer but I am not convinced since the house has not been our marital residence. The realtors like to use the phrase "one to buy; two to sell", which seems like a broad-stroke statement which is not applicable under all circumstances. And of course, the realtors don’t realize the details of my specific circumstances: I purchased and paid for the house in full prior to marriage Only my name is on the deed And most importantly, we have never lived in the house as a marit...
Post a Comment
Read more

Question With Tricon "Pending ID".....

My wife and i, along with 2 other peopl applied to rent a house, and our application says "Approved, Pending ID". Anyone else know what that means? Do we pretty much have the place or are we missing something? submitted by /u/Itskrueger [link] [comments] source https://www.reddit.com/r/RealEstate/comments/1orixqj/question_with_tricon_pending_id/
Post a Comment
Read more

Aren't comps/CMAs useless with buyer credits at close happening now?

I'm looking into buying a new construction townhouse in my HCOL US city. I'm seeing builders offering interest rate buydowns worth $20k-$60k on $800k homes (rather than just lowering prices) in order to keep their comps high for their other units, now that buyer demand has been declining. I asked my agent about these, and he said these buydowns aren't even the full story: buyers can write all kinds of other credits into an offer, like their closing costs, prepaid sewer fees, etc. Apparently cash buyers can just write in a "buyer credit at close" for any amount in their offer. So a new townhouse that appeared to sell for $800k in the MLS might have actually been a cash offer with a $100k+ buyer credit at close, meaning the buyer only spent $700k or less in total, but to the rest of the world they can only see the $800k! So that made me realize I can't trust comps/CMAs for other new construction townhouses. The sales prices could be way lower than they appear...
1 comment
Read more