If you are a homeowner, tax deductions provide some nice benefits that make owning a home more appealing for you. Here is an overview of some recent changes from the recently passed tax bill that may affect your bottom line when you do your taxes.
The mortgage interest deduction that you likely know and love downsized a little and will only provide benefits on mortgages up to $750,000 down from $1,000,000. This is still a huge benefit to homeowners and the change will only impact a small percentage of homeowners. If you already own a home with a mortgage up to $1,000,000 you will be grandfathered in at your current levels, so this change won’t affect you. The mortgage interest deductions on second homes are still available as well but at the new limits.
Interest paid on home equity loans will not be deductible any longer unless you are using the money to substantially improve the residence so if you planned to use your home equity line to finance other items, you may want to consider alternative financing options.
Property taxes as well as state and local income taxes are still deductible but have a combined limit of $10,000 now so your benefit may have decreased if you were deducting more than that.
One of the biggest differences with the new tax bill is the standard deductions for filers. Single filers will now be eligible for a $12,000 deduction and joint filers a $24,000 deduction. Because of the significant increase in the standard deductions, many homeowners will no longer experience the benefit of the mortgage interest and property tax deductions.
While moving expenses have been deductible in the past, this item has been repealed except for members of the Armed Forces meaning most American citizens will lose this benefit.
To homeowners, tax benefits may be fewer depending on the size of your mortgage and other variables as well but there are other significant advantages to owning a home, so most people will still choose to own a home even if they aren’t able to deduct the mortgage interest and property taxes as they have in the past. Currently, only about half of American homeowners own homes worth enough to justify itemizing your taxes to claim the mortgage interest deduction. Most tax payers, more than 60%, don’t itemize their tax bills currently and therefore haven’t been taking advantage of this deduction as it is. With the rise in standard deductions, there will likely be fewer people that itemize since there is less reason to do so.
For most people, the changes will have both positive and negative impacts so determining which situation is best for you is a question for your tax professional. Consult with them as early as possible to determine the best solution for your household. For additional information regarding the tax benefits of owning a home, feel free to contact me today for a consultation. I will be happy to answer any questions you may have, help you to find a new home or determine the value of your existing property.