Are you a recent homebuyer preparing your 2018 taxes? You’ll definitely want to know about some important tax law changes that have come into effect since the last time you filed.
The Tax Cuts and Jobs Act of 2017 created important changes in America’s tax laws for homeowners. Here’s a rundown:
- The moving expense deduction is no longer available. Active members of the Armed Forces who receive an order to move still qualify for this deduction. But this policy is set to expire at the end of 2025 unless further legislation is passed.
- The mortgage interest deduction is now capped at $750,000 of debt. The new rule applies to loans taken out after December 14, 2017. Mortgages obtained before that are grandfathered in up to $1 million.
- A refinanced mortgage qualifies for a mortgage interest deduction only up to the amount of the old mortgage. If your current home loan is $600,000, and you want to take out a mortgage for $700,000, only $600,000 of the new mortgage qualifies for Uncle Sam’s coveted mortgage interest deduction.
- $10,000 is now the maximum deduction for property taxes paid to local and state governments (for married couples and individuals). This limit is for the combined total of real estate and income taxes. Previously there was no federal return maximum deduction for these so-called SALT taxes. The new cap will hit high-tax states especially hard, as $10,000 is minuscule for them. Even worse, the $10,000 figure is not indexed for inflation.
- The IRS no longer accepts deductions for home equity loans. There’s one exception to this new rule: if loan proceeds are used to make improvements to the home, the interest is deductible. As with the moving expense deduction, this new policy on HELOCs also sunsets at the start of 2026 if a new law isn’t passed by then.
A few things haven’t changed. Here are some features of the pre-2017 tax system that are still in place:
- Capital gains on the sale of a primary residence are still tax exempt up to the limits.
- Mortgage Credit Certificates are still available. An MCC can provide a yearly tax credit (not a tax deduction) of up to $2,000.
- Interest on second homes is still deductible. However, the deduction is subject to the $750,000 / $1 million limits mentioned in point 2 above. This is a combined limit for the two properties.
If you want to know more about how the new tax law affects you, click the button below to schedule a free consultation with a Glass Jacobson accountant.