New Rules for Mortgage Interest Deductions in 2018 - Know What Will Affect You and Your Property
January 9, 2018 | Client Care
In December, Donald Trump signed the much-debated (and highly controversial) Tax Cuts and Jobs Act. This bill, drafted by Republicans in the House and Senate, will affect many Americans up and down the income scale. It will also have an impact on homeowners with mortgage loans, particularly those in high-priced markets with expensive homes.

There's also a lot of confusion surrounding this new legislation, mainly because there have been multiple versions of it.

Here's a summary of the bill's key provisions:
  • The mortgage interest deduction cap is being lowered to $750,000.
  • State and local property, sales and income tax deductions have been capped at $10,000.
  • The so-called "standard deduction" for taxpayers has been roughly doubled.

Mortgage Interest Deductions Capped at $750,000

The newly enacted tax-code legislation hits homeowners by lowering the mount of mortgage interest they are allowed to deduct from their taxes. These changes could impact many homeowners across the country, particularly those who purchase homes in the more expensive housing markets.

In less expensive areas, where the typical home price falls below $750,000, buyers purchasing a house in 2018 will be largely unaffected by this change. That's because the new limit or cap will still be higher than their mortgage amount. So they'll be able to deduct the interest paid on the full mortgage balance -- generally speaking.

There's also some good news for people with existing loans that were taken out prior to this change. Those folks will be unaffected by the lower deduction limit. The old limits will be "grandfathered" for those homeowners. The reduction will only apply to newly purchased homes, from January 2018 on.

Goodbye, Equity Loan Deductions

There's another big change that will affect many homeowners across the country. Going forward, the interest paid on home equity loans will no longer be tax deductible. This is another important part of the Tax Cuts and Jobs Act, because it has the potential to impact many Americans nationwide.

And unlike the mortgage interest deduction changes mentioned above, this one will not be grandfathered. For homeowners with equity loans, 2017 was the last year they could write off the interest.

According to a December 22 Marketplace article by Jana Kasperkevic:

"In the past, homeowners who took out home equity loans were able to deduct the loan's interest up to $100,000 from their taxes. Under the new tax bill, this deduction is a thing of past. The change takes effect in 2018, meaning this is the last year that homeowners can write off the interest paid."

In addition to the mortgage deduction changes mentioned above, the new law chips away at some other tax benefits. It limits the amount of property taxes, and state and local income tax, that a person can deduct. There wasn't really a hard limit before. But going forward, such deductions will be limited to $10,000.



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