New Federal Tax Changes for Homeowners
Many sweeping changes have happened over the past year, the tax bill being one of the most memorable to close out 2017. Homeowners are left wondering how this will affect them and the affordability of their home. According to recent data, only 6 percent of homeowners have mortgages exceeding $750,000 (only 1.3 percent of all U.S. mortgages). Here is a breakdown of the new changes:
Mortgage Interest Deduction Ceiling
The new limit on mortgage interest debt you can deduct on your taxes is $750,000 as of December 15th last year. Any loans taken out before that date have been grandfathered in at the original $1,000,000 ceiling. The $750,000 limit remains the same with mortgages on second homes.
Deductibility on Home Equity Loans
New in 2018, there will be no deductions of interest paid on home equity loans, with the exception of the funds being used to significantly improve the residence, effective through 2025.
New SALT Standardized vs. Itemized Deductions
Previously unlimited, the new state and local property taxes and income or sales tax can be itemized up to $10,000, which affects only 5% of homeowners who pay more than that in property taxes. However, the Standardized Deduction allowance has increased to $12,000 and $24,000 for individuals and joint filers, respectively.
What Hasn’t Changed
There are some tax laws that remain intact, like the Exclusion of Capital Gains — allowing any taxpayer who has resided in their home for 2 of the past 5 years to qualify for the capital gains tax exclusion.
While some homeowners and potential homebuyers see a decreased incentive in homeownership, the markets most affected by these changes are the areas with higher home values, like San Fransisco or New York. There remain other perks of homeownership to still look forward to — like building equity and appreciation in value over time. It’s important to work with Real Estate and Mortgage professionals to help navigate what you can comfortably afford.