The New Tax Law and Your Mortgage Interest Deduction

Tax day is sneaking up on us.

If you have a big mortgage or home equity loan, the new tax law will affect you. The Tax Cuts and Jobs Act (TCJA) trimmed two important tax breaks for homeowners and left another big one completely untouched. So what does it all mean for housing? New limits on home mortgage interest deductions. Here’s how the new law limits itemized deductions for mortgage interest:

Under the old tax law all property taxes paid to state and local governments could be claimed as an itemized deduction. It was also possible to deduct state and local income or sales taxes. The new law bundles all these so-called “SALT” taxes together and limits the deduction, in total, to $10,000 for both individuals and married couples.

For homeowners in high-tax areas such as New Jersey, $10,000 does not come close to covering their combined property and income tax bills. There was, unsurprisingly, a rush by homeowner prepay property taxes 2018 so they could be deducted on 2017 taxes. Some of those prepayers may be disappointed. The IRS said on December 27 that only those 2018 taxes that had already been assessed were eligible for prepayment.

Even if the SALT and mortgage-interest changes do not impact you directly, do not assume your net after-tax housing costs will remain the same. The new law roughly doubles the standard deduction to $12,000 for an individual filer and $24,000 for married couples filing jointly. For many couples, the increase in the standard deduction will cancel out the benefit of itemizing, since their mortgage interest and $10,000 SALT deduction combined, won’t exceed $24,000. Many homeowners will be blissfully unaffected by the TCJA’s new limits on deducting home mortgage interest. But folks with larger mortgages and home equity loans must take heed.

Read full article here 

Further reading: 11 Things to Know About Mortgage Interest Deductions for 2018

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