The sweeping tax bill signed into law just before the 2017 holidays brings changes for virtually all homeowners — but, for the most part, not until you file your 2018 tax return in 2019.
Homeowner tax deductions don’t really change for taxes due this year. So file as you normally would on April 17 (or Oct. 15, if you get an extension).
After this tax season, here’s how the new law can affect your home ownership tax benefits.
The Standard Deduction Is Going Up
Because the standard deduction has increased across the board — to $12,000 from $6,500 for single individuals and to $24,000 from $13,000 for joint returns — fewer people will have a reason to itemize. And you guessed it, to get home ownership tax benefits, you have to itemize.
If you do have enough deductions to itemize, some things have changed:
The Mortgage Interest Deduction Remains, But With a New Cap
The maximum mortgage debt on which you can deduct interest for new loans is now $750,000, not $1 million as before. Second-home mortgage interest follows the same rule.
If your mortgage existed on Dec. 14, 2017, you’re grandfathered in on the $1 million maximum. Also, you can refinance that existing mortgage and keep deducting the interest on up to $1 million of debt, so long as you don’t increase the amount you owe with the refi.
Related: How to Deduct Mortgage Interest
Home Equity Loan Interest Is Only Deductible for Home Improvements
If you’re planning to redo a bathroom or a kitchen or fix up a fixer-upper, the interest on new home equity loans, home equity lines of credit, and second mortgages will still be deductible, but only up to the maximum amount (for all mortgages) of $750,000. (The new rules refer to “substantial” home improvements, though the rule makers didn’t define that word. Talk to your tax pro.)
The rules no longer allow you to use home equity loans to get tax-deductible financing for such things as consumer debt and tuition.
However, if you have an existing home equity loan (approved before Dec. 15, 2017) and the proceeds were used to substantially improve your home, the interest will remain deductible, so long as you don’t exceed the total cap.
State and Local Tax Deductions Are Capped
Through 2017, these deductions were unlimited. Starting with tax year 2018, state and local taxes, including property and income or sales taxes, are capped at a total of $10,000 combined.
BTW, talk with your tax preparer if you prepaid your 2018 property taxes in 2017 in hopes of maxing out your deductions before the tax law change. Whether it’s actually deductible depends.
- If you had a 2017 property tax bill in hand, that means the tax was assessed and you should be able to deduct it with your 2017 taxes if you itemize.
- If your local taxing authority said it would accept prepayments, but the tax hadn’t yet been assessed — just estimated — the payment likely isn’t deductible on your 2017 tax returns.
Casualty Losses Have Been Pared Back
Casualty losses for such things as a home burglary or a fire are no longer deductible. To claim a casualty loss, the loss has to fall under a presidentially declared disaster, like a hurricane or earthquake.
Moving Expense Deductions Are Limited to the Military
Unless you’re in the military, moving expenses you pay out of pocket for a job relocation (at least 50 miles farther from your house than your current job) are no longer deductible. And you can no longer exclude employer reimbursements for moving expenses from your income.
What’s Not Changing
The capital gains exclusion on a gain on the sale of your home stays the same. When you sell your primary residence, you can make up to $250,000 in profit if you’re single, or $500,000 if you’re married, and not owe any taxes on those gains. Most people are eligible for this exclusion, but you must have lived in your home for at least two of the five years before you sell.
The student loan deduction — up to $2,500 if you’re repaying — stays put, and you don’t have to itemize to take it.
The home office deduction remains for independent contractors. But for employees who work from home, it’s been repealed.
The prepaid interest (or points) you paid when you took out your mortgage is still 100% deductible in the year you paid it, if you itemize. If you refinance your mortgage and use that money for home improvements, any points you pay are also deductible in the same year.
But if you refinance to get a better rate or shorten the length of your mortgage, or to use the money for something other than home improvements, such as college tuition, you’ll need to deduct the points over the life of your mortgage. Say you refi into a 10-year mortgage and pay $3,000 in points. You can deduct $300 per year for 10 years.
If you’re a landlord, there’s good news: Your mortgage interest and property tax deductions on your rental real estate remain unlimited.
What’s Been Gone for a While
The private mortgage insurance (PMI) deduction expired with tax year 2016. Ditto the residential energy tax credits for installing things like energy-efficient windows and doors, water heaters, furnaces, and insulation.
Congress didn’t address either of these benefits in the new tax legislation. However, it’s still possible that lawmakers may retroactively reinstate these tax benefits in 2018.