Tax Law Changes and Homeowners
The recently signed federal tax law will impact many homeowners. Taken together these changes could represent a significant change for U.S. homeownership. For example, according to housing researcher Zillow, the share of homeowners who itemize their tax returns will drop from 44% to 14%. Some anticipated changes to taxes include:
If the home is moderately-priced:
Your taxes will probably be easier to file, and you could save some money.
The Tax Cuts and Jobs Act doubles the standard deduction to $12,000 from $6,350 in 2017 ($24,000 from $12,700 for couples), eliminating the need to itemize for homeowners with mortgage interest and property tax bills that fall below these thresholds (assuming no other big potential deductions).
If the house is on the expensive end:
You could end up owing more, especially if you live in a state with higher taxes and land values.
The new law crimps homeowner benefits on two fronts, capping the amount of deductible property and other state and local taxes at $10,000, while also scaling back the potential of the mortgage interest deduction. While homeowners could previously deduct interest on mortgage amounts up to $1 million, that limit has been lowered to $750,000. The result is that these homeowners’ individual deductions may still be worth more than new, higher standard deduction, but also far less valuable than they were before.
You have your eye on a second home:
While earlier incarnations of the Tax Cuts and Jobs Act proposed axing the mortgage interest deduction for second homes, the version of the plan signed into law preserves the ability to do so, if with less impact due to the $750,000 cap. The limit applies across all mortgages, meaning if a buyer with a $500,000 mortgage borrows $300,000 for a second home, the interest on $50,000 worth of those mortgages is not deductible.
Even if your two mortgages combined total less than $750,000, the Tax Cuts and Jobs Act could still change your purchase’s tax implications. The $10,000 cap on state and local tax deductions holds no matter how many homes you own, so it’s important to consider how high a second home would raise your total property taxes.
[Source: Money 1/17/18]