What’s the best investment you can make in 2018? Three considerations—taxes, risk and the economic cycle—point to one conclusion: Paying down debt looks like an awfully smart move.
Debtors’ prison. Ridding yourself of debt, even mortgage debt, has long been a savvy alternative to buying bonds and certificates of deposit. But thanks to the new tax law, it looks especially savvy right now—and especially if you’re married.
How come? The new tax law took away personal exemptions but compensated by roughly doubling the size of the standard deduction. In 2018, the standard deduction will be $24,000 for married couples filing jointly, $18,000 for heads of household and $12,000 for single individuals. Meanwhile, the allowable itemized deduction for state and local taxes, including property taxes, will be capped at $10,000 starting next year.
That means that many married couples will end up taking the standard deduction, because their local tax deduction, mortgage interest and other allowable deductions don’t exceed their $24,000 standard deduction and thus it isn’t worth itemizing. Even if their itemized deductions exceed the $24,000 threshold, the benefits of itemizing will likely prove modest.