Now that the dust has settled on Congress’ new tax plan, let’s look at what the final version means for homeowners.
Starting with the 2018 tax year, the bill changes how much we can deduct for three homeownership expenses: property taxes, mortgage interest and home equity interest.
Property taxes have seen the most press because the change here is significant. Previously, any amount of state and local income taxes was deductible if you itemized deductions, as is common for homeowners. This includes any state income tax, sales taxes and, most importantly here, real estate tax on your primary residence.
In the new plan, however, the allowable deduction for the sum of these taxes is capped at $10,000. So if what you pay for property tax plus your state’s income and sales tax exceeds that amount, the payments above $10,000 are no longer deductible.
The other significant homeowner deduction goes to those with a mortgage or home equity loan, allowing you to deduct interest paid on that debt. In the new bill, mortgages and home equity debt diverge, and your mortgage date will determine how much interest is deductible.
For mortgages originated before Dec. 15, 2017, there’s no change – you can deduct all interest incurred on a debt up to $1 million. But on mortgages taken out Dec. 15, 2017 or later, you can only deduct interest on loan amounts up to $750,000.
The treatment of home equity debt is changing more starkly. Starting with your 2018 taxes, the deduction for interest paid on home equity loans or lines of credit has been eliminated.
It’s important to note that although homeownership deductions are being diminished, the tax bill includes other potentially offsetting changes. So whether your 2018 tax bill increases or decreases will vary widely by region and individual situation.