How will the new tax law impact you?
By Al Ricci
By now you’ve likely heard Congress recently passed a tax reform bill. What you may not know, is how homeowners will be impacted in 2018. If you’re in the market to buy, or already own your home, here’s how the new tax plan will impact you.
Mortgage interest. Previously, qualified homeowners could reduce their taxable income by the amount of mortgage interest they paid each year – up to one million dollars for married couples filing jointly ($500,000 for singles or married couples filing separately). Mortgage interest is still tax deductible with the new plan, but only up to $750,000 for married couples filing jointly ($375,000 for singles or married filing separately). This change impacts all homes purchased after Dec. 15, 2017, and is also applicable to mortgages on second homes. While this change may not be important for U.S. cities where the average price of a home is approximately $250,000, for more expensive cities (think: New York and Los Angeles), it’s a significant decrease. Notably, there are a few exceptions to this law, so be sure to speak with your accountant and/or mortgage lender to understand how you will personally be impacted.
Property tax. The new bill now includes restrictions on the amount of property tax you can deduct from your taxable income.
Now, homeowners may deduct up to $10,000 in property taxes ($5,000 for couples filing separately), including state and local income taxes or sales taxes.
Home equity. With the former tax plan, homeowners could deduct the interest paid on home equity debt for reasons other than to renovate your home (like for college expenses, for example). The home equity deduction was eliminated with the new tax plan.
Moving expenses. The old plan included deductions for qualified homeowners relocating for a new job. Now, moving expenses are only deductible for active duty members of the armed forces.
To itemize, or not to itemize. Another significant change: an increase in the standard tax deductions (the flat amount that the tax system lets homeowners deduct, no questions asked).
Beginning in 2018, the standard deductions per household nearly doubles, increasing from $12,700 to $24,000 (for married couples who file jointly). This change means more Americans will likely forego itemizing their taxes this year. In previous years, itemizing typically resulted in more money in your pocket at refund time. Now, you may be able to save time by not itemizing and still benefit financially. Ultimately, the new tax plan will impact every taxpayer differently. Even with the lower interest deductions, the bill introduces new tax brackets, which could reduce your individual tax rate and increase your paycheck. How you are personally impacted is contingent upon various factors beyond homeownership. Be sure to talk to your tax professional to know exactly how this new tax plan will affect you and your family.