Tax Reform: How the New Tax Law Affects Home Ownership
Tax Reform: How the New Tax Law Affects Home OwnershipFebruary 19th, 2019
Tax season is upon us and to make it even more interesting this year, the tax code has changed along with some of the rules that affect home ownership.
Key Factors that Affect Home Ownership
The standard deduction has nearly doubled. Many people will get a bigger deduction by taking the standard deduction rather than itemizing and taking the mortgage interest deduction.
- $24,000 for married filing jointly (up from $13,000)
- $18,000 for head of household (up from $9,550)
- $12,000 for singles (up from $6,500)
Mortgage Interest Deduction
The new tax law reduces the cap of the mortgage interest deduction to loan amounts of up to $750,000 (previously $1 million).
State and Local Tax Deduction (SALT)
The new tax law caps the state and local tax deduction to $10,000 combined.
Rental Property Deductions
There are no limits on the mortgage interest and SALT deductions for rental properties.
Home Equity Loans
Interest on home equity loans can be written off only if it was used to substantially improve your home and it is capped at $750,000 for the combined first and second mortgage.
Some closing costs are deductible such as real estate taxes, mortgage interest and loan origination fees (points).
Loss from a disaster
The cost of damage to your home can be written off if it was caused by an even in a federally declared disaster zone.
Moving expenses can be written off for active members of the armed forces moving to a new station.
Home Office Deduction
The home office deduction can be taken regardless of whether you take the standard deduction or itemize if:
- You are self-employed
- File a Schedule C
Capital Gains Tax
There was no change to the capital gains exclusion for your primary residence. If you lived in your home for 2 of the past 5 years, you can exclude your capital gains up to:
- $500,000 for married filing jointly
- $250,000 for singles.
Tips for the Tax-Savvy Homeowner:
Pay your mortgage down faster
If you mortgage is over the $750,000 cap, pay it down faster to get the balance under the threshold.
Make a bigger down payment
If buying, make a bigger down payment so the mortgage does not go over the $750,000 limit.
Increase your eligible deductions so you can itemize your deductions if it’s greater than the standard deduction. Consider other eligible deductions such as student loan interest, medical expenses and charitable donations where they apply.
Update your withholdings
With the tax law changes, you may not be withholding enough, or perhaps you were withholding too much, resulting in a drastic change in your tax refund. Review and update your tax withholdings regularly to avoid surprises and maximize your budget.
- Early in the year
- When you have life changes
- When there are tax law changes
Tax law is complicated so see your tax professional to learn more about how the new tax law affects your particular situation.
Disclaimer: All information provided is deemed reliable, but is not guaranteed and should be independently verified.