The recently signed Republican Party tax plan is set to bring radical changes to tax rates, brackets, and deductions. A tax overhaul would affect America’s current and future homeowners due to lower limits on how much mortgage interest and property taxes can be deducted, along with whether interest on certain types of housing-related loans can even be deducted at all.
Here are three of the biggest changes homeowners should know about in the GOP’s tax plan.
1. Mortgage interest deductions
Currently, buyers can deduct $1 million of mortgage debt on a newly purchased home. However, under the new plan, this deduction would be limited to $750,000. That’s lower than the current limit but higher than the proposed House budget of $500,000. However, people who have mortgages issued before the December 15, 2017 cutoff date would be grandfathered in, and will still be able to deduct interest up to $1 million. The lower limit would do little to help people already struggling to buy a home in expensive cities such as New York and San Francisco. Some experts also are concerned that the increased threshold could keep people from selling their homes sidelined, limiting an already short supply of housing which would drive prices higher as buyers store more cash in the bank. The new cap also would apply to mortgages on second homes.
In order to take advantage of the mortgage interest deduction, homeowners must itemize their taxes come April 2018. However, the final bill nearly doubles the standard deduction—$12,000 for individuals and $24,000 for married filing jointly—it’s expected that far fewer people will be able to squeeze as many benefits out of their homes in 2018.
The GOP bill also eliminates the deduction for interest on home equity loans that now is allowed on loans up to $100,000.
3. Property tax deductions
Under the new GOP tax plan, deductions will likely see a substantial change. The new bill allows taxpayers to deduct only up to $10,000 of state and local property taxes ($5,000 for married filing separately). There is no limit on how much state or local taxes can be deducted from federal taxes under the current tax law. That means homeowners that live in high income and property taxes states such as New York, California, and New Jersey could experience an increase in what they owe the IRS come April.
Taxes can be downright confusing and a headache, but they don’t have to be. Your local PERL lender has a handful of “tax best practices” to help you potentially save thousands of dollars. Contact PERL today to see how you can take advantage of the new tax plan in 2018.
*The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.