What Homeowners Need to Know About the New Tax Law

The new changes will take affect for your 2018 tax return so there is no need to worry about them for this tax return but they will have an impact next year so it is important to be aware of them and plan ahead.

The Tax Cuts and Jobs Act was signed into law on December 22, 2017 and rewrites large portions of the tax code for both businesses and homeowners. We thought we would take a look at how these changes will impact homeowners.

This article is an overview of the coming changes and is in no way tax advice. Your personal finances will determine how these changes impact you so check with a tax professional if you have questions specific to your own finances.

Mortgage Insurance Deduction Changes for 2017

While mortgage interest is still deductible and will not change for this years tax returns, there has been a change in the way private mortgage insurance is handled that takes affect this year.

In the past, private mortgage insurance payments on conventional, FHA and USDA loans were tax deducible. However, that has changed for the 2017 tax year. Congress decided to not renew the provision that allowed mortgage insurance to be deducted so these payments are no longer deductible starting with your 2017 tax return.

Changes to the Tax Law for 2018 Returns

The changes outlined below will take affect for your 2018 tax return so there is no need to worry about them for this tax return but they will have an impact next year so it is important to be aware of them and plan ahead.

It should be noted that while the changes that relate to corporations are permanent, the changes pertaining to homeowners will expire in seven years.

Here is everything you need to know about the coming tax changes and how they affect homeowners.

Standard Deduction is Increased

While this portion of the new tax law may not be directly related to homeownership it may determine whether or not you decide to itemize your taxes and deduct your mortgage payments.

The standard deduction has basically been doubled so now a single person can take a $12,000 deduction while married couples filing jointly can deduct $24,000. You can also deduct $2,000 for each child you have as well as $500 for non-child dependents.

If you choose to take the standard deductions there are no exemptions or deductions to be added to it. You will need to review your personal finances to determine whether or not it makes sense to take the standard deduction or itemize on your taxes.

Deductions Related to Homeowners

If you decide to itemize your taxes, the following deductions have changed and are related to homeowners.

Property Taxes

Before the changes, you could fully deduct every dollar that you paid in local, state and property taxes but that is no longer the case.

In 2018, your state, local and property taxes will all be considered one pool of money and you can only deduct up to $10,000 in total so if your total for these three is over $10,000 you cannot deduct any amount that goes over the $10,000 limit.

Mortgage Interest Deduction

While you can still deduct your mortgage interest there have been changes and limitations put in place that can impact your taxes. These changes will take affect for your 2018 taxes.

You will be able to deduct the mortgage interest on your primary home and any vacation homes you own with total mortgage amounts up to $750,000 for joint filers or $375,000 if you are married and filing separately. If you have mortgages above these amounts you will not be to deduct all of the interest that you paid.

If you are a new homeowner and closed on your home before December 15, 2017 you are grandfathered into the old limits that were $1 million for joint filers and $500,000 if you are married and filing separately.

The home equity loan deduction which used to let you deduct $100,000 in interest on a home equity loan that was used for something other than buying, building or improving your home (being used for a college tuition as an example) has been completely eliminated.

Moving Expenses Deduction

Before the changes it was possible to deduct some moving expenses when relocating for work. This deduction has been completely eliminated except for active-duty members of the armed forces.