Homeowner Related Provisions in the Final Tax Bill
The tax bill finally made its way through Congress and was signed by the President just before Christmas. The final version of the bill was a bit different than the original proposal. Here are some helpful details on homeowner related provisions in the final tax bill.
Mortgage Interest Deduction
One of the most important homeowner related provisions in the final tax bill applies to mortgage interest payments. The amount of deductible interest on residential properties has been reduced. Only interest against $750,000 of loan amounts is deductible when itemizing deductions on your federal taxes. This is down from the previous limit of $1 million. If you closed on your loan prior to December 14, 2017, then you are grandfathered in and may continue to deduct a higher amount. New loans will be subject to the new limitation.
State and Local Tax Deductions
Another important change that impacts homeowners is the limit on state and local tax deductions. Previously, there was no limit. Any state income taxes and local property taxes paid were deductible. However, this has now been capped under the new law. Only $10,000 of all local and state taxes may be deductible. This limit applies to both single and married filers.
Although your property taxes may be less than $10,000, when combined with any state or local income taxes, it's possible that you may quickly reach that threshold and therefore not be able to deduct the full amount of your home's property tax bill.
Summary of Homeowner Related Provisions in the Final Tax Bill
The above are the two homeowner related provisions in the final tax bill. You may notice that there is no reference to Capital Gains Exclusion. There was a proposal to require residency of 5 out of 8 years (instead of 2 out of 5) to qualify for capital gains exclusion from the sale of primary residences. Fortunately, this was eliminated in the final bill.
There are many other elements of the new tax bill that could indirectly affect homeowners. This information is meant to be a general overview and should not be considered tax or legal advice. Consult with a tax professional for information on how the tax law changes will directly impact your tax liability for 2018.