Wondering if the new tax laws will take deductions out of your pocket? Here are a few ways the bill will affect homeowners and the housing market:
MORTGAGE INTEREST DEDUCTION
Prior to this tax reform bill, homeowners could deduct the interest on their mortgage debt, up to $1 million. The new law caps the interest deduction on mortgage debt to $750,000 for new mortgages. Current homeowners are not impacted by this change.
Additionally, homeowners are no longer allowed to deduct the interest they pay on home equity debt. VERY IMPORTANT: the home equity line of credit (HELOC) deduction is NOT grandfathered. So, individuals with a HELOC will lose the deduction.
The new tax bill also curbs how much homeowners can deduct for paying property taxes. The previous tax law allowed taxpayers to deduct state and local income or sales tax and also property taxes.
Property, state and local income taxes face a combined $10,000 deduction limit.
CAPITAL GAINS ON HOME SALES
One tax break that remains in place is a rule that lets homeowners shield some of the profits they make selling their home from capital gains taxes.
For individuals, the break applies up to $250,000 in profits on the sale of a principle residence; for married couples, it is up to $500,000.
For more information on how the new tax bill might effect your homeowner deductions contact your CPA or tax professional.