If you currently own a home or are looking to purchase a home, you need to be aware of the tax changes that will impact your home tax deductions. You can review your 2017 Schedule A for the amounts you paid and how this may change for 2018.
State & Local Taxes
This category of itemized deductions includes amounts paid for state and local income tax, sales tax, and property tax. This includes such items as sales tax paid for a new car or boat, RTA tax paid with your car tab renewal, and real estate tax paid on your primary and second homes.
Under the new law, only $10,000 of combined income, sales, and property taxes are deductible. Watch out – if you live in high-tax cities and states, your deduction may be limited!
Home Mortgage Interest Deduction
The amount of mortgage interest you can deduct is based on the total amount of your mortgage debt (primary residence and second home combined including all mortgages). For 2017, this amount was $1 million. For 2018, this amount decreases to $750,000. Don’t panic yet you may still be eligible under the $1-million rule if:
- You purchased your home prior to the end of 2017.
- You purchased a home in 2018, but had a written contract in place by Dec. 15, 2017, and the purchase was finalized by April 1, 2018.
- You refinanced your current home and the new loan does not exceed the principal balance of the old loan at the time of refinancing.
Mortgage interest on home equity debt, often referred as HELOC interest, is now only deductible to the extent that the home equity debt was used to buy, build, or substantially improve the taxpayer’s home that secures the loan. Interest on loans used for any other purpose, such as to pay off personal debt, is no longer deductible. This applies to all home equity debt established before and after 2018. However, existing HELOC loans used for qualified expenditures prior to 2018 can still be considered up to the $1-million threshold.
