Todd recently received a question that allowed him to unpack one of the more misunderstood topics of home ownership: mortgage interest deductibility—especially for high-income earners.
What came out of that conversation challenges a belief many people have accepted as fact.
The Myth: “Your Mortgage Interest Deductions Phase Out”
You’ve probably heard this before: “Once your income reaches a certain level, your mortgage interest deductions phase out.”
It sounds logical. It sounds authoritative. It’s also misleading.
The phrase “phases out” creates a very specific mental picture—that your deductions gradually disappear or become useless as your income rises. That’s not what’s actually happening.
The Reality: It’s Not a Cap—It’s a Threshold
Instead of a hard cutoff, what really happens is this:
For roughly every $1 million of income, about $30,000 of deductions are eliminated
And here’s the key insight:
It’s the first $30,000 of deductions that disappear—not the last. This distinction changes everything.
Why This Matters (A Simple Example)
Let’s say someone earns $1 million and has:
$30,000 in charitable deductions
$30,000 in mortgage interest deductions
At first glance, they might assume: “My deductions don’t matter anymore—I’ve phased out.”
Yet here’s what actually happens:
The first $30,000 of deductions is eliminated
The next $30,000 (in this case, the mortgage interest) still counts
Without the mortgage interest deduction, they’d get zero deductions. With it, they still get $30,000 of usable deductions. That’s a completely different outcome.
The Strategic Insight
Here’s the thing that most people miss when drawing a conclusion: the higher your income, the more valuable additional deductions can become, not less.
Why? Because, in order to get any deduction, you must first “clear” the eliminated portion. Only then do your deductions begin to benefit you.
So instead of thinking that deductions don’t matter at your income level, a more accurate perspective is: “I need enough deductions to get past the threshold so they actually start working.”
What This Means for Mortgage Interest Deductions
There’s a common recommendation given to high-income earners: “Pay off your mortgage—you’re not getting the deduction anyway.”
Based on what we now understand, that advice doesn’t hold up. In fact, mortgage interest can help push you past the elimination threshold; it can enable other deductions (like charitable giving) actually to count; and it can improve your overall tax efficiency—not reduce it
This Isn’t Just for High-Income Earners
Interestingly, a similar concept applies at lower-income levels, too.
If your deductions don’t exceed the standard deduction, you don’t itemize. That means charitable contributions (and others) may not benefit you at all. However, a mortgage can often be the factor that pushes someone into itemizing territory, allowing them to take advantage of all their deductions.
The Bigger Lesson
This isn’t just about taxes. It’s about how language shapes financial decisions. When terms like “phase out” are used loosely, they can lead to:
Oversimplified thinking
Missed opportunities
Poor strategic choices
The truth is more nuanced—and more empowering. As advisors, it’s increasingly important that we’re careful with our language so that we don’t create or perpetuate misunderstandings that can have a real impact on clients.
Final Thought
If there’s one takeaway from this conversation, it’s this: Don’t assume deductions stop working at higher income levels—understand how they actually work.
Because when you understand, you can make decisions that align with reality… not just conventional wisdom.
If you’d like to go deeper into thinking like financial institutions—and understanding how money really works—consider attending an upcoming Truth Training session. Until then, you can download a free trial of our software to see how it works for yourself.s
