2018 Tax Reform & What It Means For Homeowners

There are many changes regarding the upcoming 2018 tax season. In this letter, we will detail to you how these changes affect homeowners, specifically regarding deductions that were acceptable in 2017 that will no longer qualify, and changes to deductions still in place but now with different conditions.

Property Taxes

            All state and local taxes, including property taxes due, are capped at $10,000. This cap does NOT apply to taxes paid on business or rental property.

            How does this change affect you? It is possible that you will not receive any tax benefit for property taxes paid. An example: If you pay $10,000+ in state income taxes, your federal income taxes will not be reduced by the payment of property taxes. Another example: if you pay $7,000 in state income taxes, and another $6,000 for property taxes, you will not be able to deduct the $3,000 of the $13,000 total paid due to the $10,000 limit.

Mortgage Interest

            Mortgage interest is still deductible. However, the limit on mortgage debt for the purpose of the mortgage interest deduction is now reduced to $750,000 from the previous $1,000,000 for loans made after December 15, 2017. Loans made prior to this date are grandfathered in at the higher $1,000,000 rate.

            Interest on equity debt is no longer deductible. Interest paid on borrowing from the equity of your home to pay off personal debts is not deductible beginning 2018. Personal debts include credit cards, auto loans, or student loans, and the like.

            Second home interest continues to be deductible. However, the combined total of the acquisition debt of your first and second home cannot exceed $750,000; $1,000,000 if incurred prior to December 15, 2017.

            Example: if you are buying a new home this year, interest you pay on a mortgage above $750,000 will not be deductible. If you borrowed from the equity of your home, this year or in a prior year, to pay off personal debts, the interest on the equity borrowing is not deductible. It was deductible in the 2017 tax year.

Standard Deduction

            The standard deduction has been doubled, to $12,000 for Single, $18,000 for Head of Household, and $24,000 for Married Filing Jointly. This means fewer taxpayers will benefit from itemizing deductions. If all itemized deductions are less than the standard deduction, you will not benefit from itemizing deductions on your return.

Home Sale

            While changes were proposed to home sale rules, none were included in the tax reform laws. $250,000 for singles and $500,000 for MFJ may still be excluded on the gain from the sale of your primary residence if you have owned the home for two of the prior five years.

            As always, get in touch with us with any questions or concerns you may have planning for these changes, and check out our website for more information and updates as we get them.