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Rental property mortgage interest vs AMT?
Posted by: drwho, November 4, 2017 01:31AM
We are fortunate enough to be in a position to pay off the mortgage on our rental income property within the next two years.

We are high income earners in the $500K+ annual income range living in Silicon Valley (California). We currently have three homes, our primary residence, a rental income property, and a second home that we rent out as a vacation rental. We paid off the vacation rental last year and are considering paying off the rental income property now.

Because we hit AMT every year we generally lose the tax deduction from our mortgages anyway so we are thinking it is good to just pay them off.

Primary home ~ $2.5M+
Mortgage of $350K at 3.25%

Income property ~$400K
Mortgage ~ $150K balance, $900/month at 4.5%
Annual income ~$25K
Annual expenses ~$15K

Vacation home ~$300K
Mortgage = $0 (no mortgage)
Annual income ~$10K
Annual expenses ~$15K

We are fully funding our retirement accounts and max out 401K, after-tax 401K, back-door Roth IRA, HSA account, 529 accounts, charitable contributions etc., so any additional money would either go to taxable investments, or to paying off mortgage at this point.

All other things being equal is there any strong reason for us to not pay off the mortgage? My thought is that we end up losing the mortgage deduction (or at least having the bulk of it phased out by AMT) so it would not be a horrible thing to pay off the mortgage on the rental property.

Thoughts on paying off vs keeping mortgage?
My main question is will the amount that I lose in possible deductions on the mortgage be less than the gains on a taxable brokerage account?

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