Home Ownership and the New Tax Plan
By now you’ve likely heard that the GOP recently passed a tax reform bill. What you may not know is how homeowners will be impacted in the New Year. If you’re in the market to buy or already own your home, here’s how the new tax plan will impact you in 2018 and beyond:
Deductions to your deductions
Arguably the most significant change to the tax plan is in how many interest deductions are now available to homeowners. The new plan impacts the following deductions:
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 ($500k for singles or married couples filing separately)
Mortgage interest is still tax deductible with the new plan, but only up to $750k for married couples filing jointly ($375k for singles or married could file separately). This change impacts all homes purchased after December 15, 2017 and is also applicable to mortgages on second homes.
While this change may not be a big deal for US cities where the average price of a home is approximately $250k, 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 $10k in property taxes($5k for couples filing separately and singles), 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 completely 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 (or, 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 $24k (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.