How will the new tax law affect homeownership and mortgages? Among other things, the tax law changes whether and how homeowners deduct mortgage interest and property taxes. Here are five elements of the tax law that could affect homeownership, home selling and moving.
Mortgage interest deduction
Beginning in 2018, the deduction is capped at interest on debt up to $750,000, instead of $1 million, for people who buy homes on or after Dec. 15, 2017. The law carves out an exception for people who were under contract to buy a home before Dec. 15, 2017, as long as they closed by Jan. 1. When you refinance a mortgage, the tax bill treats the new loan as if it were originated on the old loan’s date.
Property tax deduction
The former tax law eased the pain of paying property taxes by allowing qualifying taxpayers to reduce their taxable income by the total amount of property taxes they paid. Beginning in 2018, the deduction is limited to a total of $10,000 for the cost of property taxes, and state and local income taxes or sales taxes.
Home equity deduction
On top of the mortgage interest deduction, the former tax law added a deduction for interest paid on home equity debt “for reasons other than to buy, build, or substantially improve your home.” So, for example, if you borrowed from a home equity line of credit to pay tuition, the interest you paid was tax-deductible. Starting in 2018, the deduction is eliminated for interest paid on home equity debt.
Mortgage interest deduction for second homes
You may deduct interest on mortgage debt on your primary home and a second home. The new law keeps this part of the former tax law in place, although it reduces the amount of eligible mortgage debt, as seen in the first item on this list.
Under the former tax law, you could deduct some moving expenses when you moved for a new job. You had to meet complex criteria involving distance and timing of the move. Beginning in 2018, only active-duty members of the armed forces will be allowed to deduct moving expenses.