New Tax Law - 5 Effects to Homeownership

New year, new tax laws. With Congress' recently passed tax reform, here are five effects that might be seen by homeowners:

1. Mortgage Interest Deduction

The mortgage interest tax deduction is touted as a way to make homeownership more affordable. It cuts the federal income tax that qualifying homeowners pay by reducing their taxable income by the amount of mortgage interest they pay. Beginning in 2018, the deduction is scaled back to interest on debt up to $750,000, instead of $1 million, for people who buy homes on or after Dec. 15, 2017.

Tax Law Through 2017: You may deduct the interest you pay on mortgage debt up to $1 million ($500,000 if married filing separately) on your primary home and a second home.
Tax Law Beginning in 2018: For homes bought before Dec. 15, 2017, no change. But for homes bought Dec. 15, 2017, or later, you may deduct the interest you pay on mortgage debt up to $750,000($375,000 if married filing separately).

2. Property Tax Deduction

The former tax law eased the pain of paying property taxes by allowing qualifying taxpayers to reduce their taxable income by the total amount of property taxes they paid. Beginning in 2018, the deduction is limited to a total of $10,000 for the cost of property taxes, and state and local income taxes or sales taxes.

Tax Law Through 2017: You may deduct the property taxes you pay on real estate you own.
Tax Law Beginning in 2018: You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes.

3. Home Equity Deduction

On top of the mortgage interest deduction, the former tax law added a deduction for interest paid on home equity debt “for reasons other than to buy, build, or substantially improve your home.” So, for example, if you borrowed from a home equity line of credit to pay tuition, the interest you paid was tax-deductible. Starting in 2018, the deduction is eliminated for interest paid on home equity debt.

Tax Law Through 2017: You may deduct interest on up to $100,000 of home equity debt ($50,000 if married filing separately).
Tax Law Beginning in 2018: Eliminates the deduction for interest on home equity debt.

4. Mortgage Interest Deduction For Second Homes

You may deduct interest on mortgage debt on your primary home and a second home. The new law keeps this part of the former tax law in place, although it reduces the amount of eligible mortgage debt, as seen in item No. 1 above.

Tax Law Through 2017: Deduct the interest you pay on mortgage debt up to $1 million ($500,000 if married filing separately) on your primary home and a second home.
Tax Law Beginning in 2018: Deduct the interest you pay on mortgage debt up to $750,000 ($375,000 if married filing separately) on your primary home and a second home.

5. Moving Expenses

Under the former tax law, you could deduct some moving expenses when you moved for a new job. You had to meet complex criteria involving distance and timing of the move. Beginning in 2018, only active-duty members of the armed forces will be allowed to deduct moving expenses.

Tax Law Through 2017: Deduct some moving expenses if you meet distance and time requirements.
Tax Law Beginning in 2018: Only active duty members of the armed forces may deduct moving expenses.

Got questions? Feel free to reach out to me. I am not a CPA but I can provide guidance on home value, market conditions and great recommendations.