It’s a time we can count on each and every year – tax time! And, while it isn’t anyone’s favorite topic, it can’t be avoided.
You may remember that earlier this year there were some changes made to homeownership tax laws. So, this year, many people are wondering, will I owe more, or will I save more?
The answer is contingent on a number of factors that hinge on your finances, so let’s take a closer look at these tax changes that homeowners should be mindful about, especially with the end-of-year approaching.
Mortgage Interest Deduction
The current mortgage interest deduction covers debt up to $750,000 and was created as a way to make homeownership more affordable for buyers. This was scaled back from $1 million beginning in 2018. What it does is cuts the federal income tax that a qualifying homeowner pays by reducing their taxable income by how much mortgage interest they pay.
There is an exception to the law for buyers who were under contract by December 15, 2017, and closed by January 1, 2018. Another exception involved refinances, where the law treats the new loan as if it originated on the original loan date, meaning the $1 million would apply.
Property Tax Deduction
In the past, homeowners were able to reduce their taxable income by the total amount of property taxes paid. However, this has now been reduced to a total of $10,000 for the cost of property taxes along with state and local income taxes or sales taxes.
Home Equity Funds
Homeowners used to be able to borrow against their home “for reasons other than to buy, build or substantially improved (their) home,” meaning an owner could have borrowed from a home equity line of credit to help pay for a child’s college tuition and used this as a tax deduction. However, this too changed in 2018.
Now, interest paid on home equity debt can only be deducted if the money was used “to buy, build, or substantially improve the taxpayer’s home that secures the loan.”
Mortgage Interest Deduction Changed for Second Homes
Homeowners can continue deducting interest on mortgage debt for both their primary and second homes, but the $750,000 limit of eligible mortgage debt does apply as discussed above.
Active Duty Military Can Deduct Moving Expenses
Old tax rules dictated that you could deduct some moving expenses if you relocated for a new job. However, beginning in 2018, new tax rules only extend moving expense deductions to active duty military personnel.
To Itemize or Not: That is the Question
For some homeowners, itemizing may not be the best way to go any longer. That’s because the standard deduction for married filing jointly increased to $24,000 in 2018. This was an increase from 2017’s $12,700 standard deduction.
Say, for example, you fit the married filing jointly criteria and paid $15,000 in mortgage interest and property taxes back in 2017; you could have itemized your deductions because they exceeded the standard deduction. But given the 2018 increase, it wouldn’t make much sense to do so. Each taxpayer is different, so this question is best left to an expert like your CPA or tax attorney.
The end of the year is approaching, and soon it will be time to file your 2019 taxes. Take this opportunity to review your financial information and real estate holdings, and perhaps put in a call to your CPA or tax attorney to have any remaining questions answered.