Tax Breaks for Homeowners – What’s Changed?
Owning a home is one of the largest investments you can make. And with this investment comes several tax benefits. In fact, if you are contemplating buying a home this year or in the future, be aware of these new tax law changes made by the Tax Cuts and Jobs Act.
Without further adieu, here are three major tax breaks for homeowners after tax reform!
#1 – Mortgage Interest Deduction
Old law: Under the prior law, taxpayers could deduct the interest paid on a mortgage of up to $1 million. In addition, taxpayers who had home equity loans could deduct the interest if the value of the loan was $100,000 or less.
New law: The new law reduces the mortgage limit for deducting interest from $1 million to $750,000, which reduces the value of the deduction for large mortgages. The new law also eliminates the deduction for interest on home equity loans.
Note: the interest on a home equity loan used to make substantial improvements to your home, such as adding or remodeling a room, may still be deductible.
#2 – Real Estate Tax Deduction
Old law: Under prior law, home owning taxpayers could deduct state, local, and foreign real estate taxes they paid during the tax year, with no cap on the amount.
New law: The new law caps the deduction for all state and local taxes – income, sales, real estate, and personal property taxes – at $10,000.
These changes mean that taxpayers’ housing-related itemized deductions will now be limited. This may lead to a higher tax liability for some taxpayers. For example, taxpayers whose combined real estate tax, personal property tax, and state income tax exceeds the cap can no longer deduct the full amount of state and local taxes paid. Foreign property taxes are no longer deductible.
#3 – The Casualty Loss Deduction
Old law: Before the new tax reform law, taxpayers could deduct unreimbursed casualty, disaster, and theft losses on their residence and personal use property.
New law: TCJA repealed this deduction, except for losses on property located in a federally declared disaster area. Losses on business property are still deductible.
Advice for Taking Tax Breaks for Homeowners
Homeowners should be aware of all these changes and know that the benefits of the past may no longer be available to them.
For more advice on tax reform and home ownership, book an appointment with a tax advisor.