the New Tax Law
January 19, 2018
Taxes – a boring subject that becomes everyones’ focus in April – is at the forefront of the real estate market! The Tax Cuts and Jobs Act (TCJA) was signed into law by Congress and approved by President Trump on December 22, 2017.
While your tax accountant will be up to speed on all the changes to the tax code, we want to give you a brief run-down of how the new law affects you as homeowners.
Mortgage Interest Deduction is Limited – say what? Stick with us! TCJA reduces the maximum amount of mortgage debt you can deduct interest on your taxes from $1 million to $750,000. Are you already a homeowner with a mortgage above $1 million? Not to worry! Any loans taken prior to 12/15/2017 are grandfathered in with the old limit of $1 million – you can breathe easier!
Additionally – the interest on a mortgage for a second home IS still deductible, and that limit has not changed from $750,000.
Do you have a Home Equity Line of Credit (HELOC)? Interest on those loans are only deductible if debt is taken out to improve the residence, and this deduction is effective through December 31, 2025. No longer can you deduct interest if you use the HELOC funds for buying a car, paying for a child’s tuition, or funding any other purchases outside the home
Mortgage interest deductions are now limited to $750,000 – before the act the limit was $1 Million
Deductions for State and Local Property Taxes are Limited – as a homeowner you may itemize deductions of up to $10,000 for the total of state and local property taxes and income or sales taxes. The limit applies to both single and married filers. Before TCJA there was no limit and all state and local property taxes were deductible in the federal tax filing.
State and local property taxes may be deducted up to $10,000
Standard Deductions Increase – the standard deduction, as opposed to itemized deduction, doubles to $12,000 for individual taxpayers and $24,000 for joint filers. By almost doubling the standard deduction amount, Congress has reduced the value of mortgage interest and property tax deductions as tax incentives for homeownership. Reports note that the standard deduction will be used be more than 90% of taxpayers.
The standard deduction has increased to $12,000 for an individual and $24,000 for joint filers
Moving Expense Deductions are Removed Entirely – the new tax laws have eliminated moving expenses. The previous tax laws allowed homeowners to deduct certain moving expenses if criteria were met – this is no longer the case.
Gone are the days of deducting moving expenses on your taxes
So what does this really mean for homeownership? It means that fewer people will be itemizing the deductions associated with purchasing a home – they will turn to the standard deduction instead. And while change can be scary, there are certain tenets of home ownership that will stand the test of time: building wealth through equity, appreciation of property values over time, building a sense of community not only in your home but in your neighborhood, and having the ability to make a house your home.