Personal Financial Planning for Executives and Entrepreneurs: The Path to Financial Peace of Mind by Michael J. Nathanson

Author:Michael J. Nathanson [Nathanson, Michael J.]
Language: eng
Format: epub
ISBN: 9783030654009
Google: BfcqEAAAQBAJ
Publisher: Springer Nature
Published: 2021-11-15T23:17:34.553956+00:00

8.4 Coordinate Debt and Taxes

As mentioned above, qualified mortgage interest generally is eligible for an itemized deduction. Other types of interest also are deductible. Subject to certain limits, investment interest is deductible, as is business-related interest, including interest on business debts and debts incurred to buy a stake in a business.27

From a tax perspective, it therefore can be said that mortgage interest, investment interest, and business interest are favorable relative to interest paid on personal and other non-deduction-bearing debt such as credit card or auto loan debt. In this sense, it is often better to restructure deductible debt and pay off personal, non-deductible debt, depending on interest rates.

Of course, it’s typically a good idea to keep high-interest, non-deductible credit card debt to a minimum in any event. Paying off a credit card that charges 15% is like getting a 15% after-tax return on your money!

Because mortgage and investment interest deductions are subject to specific limitations, while business-related interest is subject to far fewer limitations, there is a general hierarchy of what type of interest is often best from a tax perspective. It looks something like the associated figure (Fig. 8.3).

Fig. 8.3The interest hierarchy

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