Many homeowners and buyers are left wondering how the tax reform legislation will affect them. The new tax plan, which is expected to lower income tax bills next year for many homeowners, is the most significant overhaul to the tax code in over 30 years. Some provisions that have a direct impact on the housing market have been taken away, added on or changed. Who will be affected by the new tax reform bill? If you have already bought a home or plan to buy one soon, here is how the tax reform bill is going to impact you in the year 2018 and beyond.
The most significant change that has been brought by the new bill is the number of interest deductions homeowners will now be subjected to. The new tax plan will implement the following deductions for homeowners:
Mortgage interest: In the past, qualified homeowners could lower their taxable income by deducting the amount of mortgage interest they have been paying each year; married couples filing jointly have reductions of up to $1,000,000, while married couples who are filing separately have cuts up to $500,000. Your mortgage interest will still be taxed in the new plan. The maximum amount for married couples filing together will be $750,000. For married couples who are filing separately, it will be $375,000. These changes will affect all homes that have been bought after December 15th of last year and mortgages on second homes. But the law has a few exceptions. Talk to your mortgage lender to better understand how the tax reform will personally affect you.
Property tax: The amount of property tax an individual can deduct from their taxable income has been restricted. Homeowners can deduct a maximum of $5,000 for couples filing separately. Couples filing together can deduct a maximum of $10,000. This includes state and local income taxes.
Home equity: Interest paid previously on the home equity debt could be deducted for other reasons besides home renovation, such as college expenses. The new plan has entirely eliminated the home equity deductions.
Moving expenses: In the old plan, deductions for qualified homeowners who were relocating for a new job were included. The new policy has only allowed moving expenses to be deducted by active members who are in the armed forces.
Another significant change in the new tax plan is the increased standard tax deductions. This year, the standard deductions for each household will increase, almost doubling what many homeowners had been paying last year. With these changes, many Americans will have to forego itemizing their annual taxes from this year. In the past, itemizing resulted in homeowners getting more cash during refund time.
With the new plan, itemizing will not save you money and time. Each taxpayer will be impacted differently by this new tax plan. But then your personal impact is contingent upon several factors beyond just home ownership. Talking with a tax professional will help you find out the potential result of the new tax plan for you and your family.
Do you have a question about the new tax plan and mortgages? Click here to contact the Kolesar Team today!