How the New Tax Law Impacts Homeowners
Big changes for homeowners take effect this year as a result of the tax reform legislation enacted in December and it’s not too early to plan for changes that affect homeowners on their 2018 tax returns.
The biggest issue may not be chances for specific deductions and exemptions, but the cumulative impact on individual taxpayers when they decide whether to itemize or take the standard deduction. Income levels, the state they live in, and whether or not they own a vacation home are some of the issues that arise with individual taxpayers’ tax liability. Many people may alter their behavior or their lifestyles to achieve lower taxes in April 2018.
Below is a brief listing of specific issues followed by a discussion about their cumulative impact may affect homeowners.
Mortgage Interest Deduction
The amount of interest that homeowners pay on their mortgages has been an attractive deduction that lowers the cost of homeownership. Owners can deduct the mortgage interest they pay on vacation homes and second homes as well, as long as they don’t rent them out for more than two weeks a year.
Also, in recent years owners have been allowed to deduct the amount they pay for mortgage insurance or for the value they received from a short sale (a sale for less than the remaining principal, which results in the cancellation of the remaining debt). Also, the value of the mortgage deduction was capped for homeowners with mortgages larger than $1 million.
- Deducting mortgage insurance payments and second home sales ended in 2017, before the tax reform bill was passed.
- The cap on the size of mortgages eligible for the mortgage interest deduction was lowered from $1 million to $750,000. Owners can still deduct the interest on mortgages for vacation and second homes.
Homeowners that have property taxes paid to state or local governments have previously been deductible. The new law limits the amount of property tax a taxpayer can deduct to $ 10,000 a year.
The new year means new laws, but staying on top of what’s going on within the federal government will not only inform you, it’ll make sure you know what options you have as a homeowner.