Will New Tax Laws Impact My Mortgage?

In the past, homeowners who were married filing jointly  could deduct the mortgage interest on up to $1 million of the amount they used to buy or improve their home. For married couples who filed separately, this limit was $500,000. With the new tax laws, these limits have changed when it comes to a home mortgage.

These changes were implemented in an effort to simplify the tax code and lower taxes on some individuals, as well as some small-businesses and many corporations. Part of these changes include the amount of interest homeowners can claim for their homes on their 2018 taxes.

For the most part, the new tax changes discourage itemized deductions by increasing the standard deduction. The new tax code also reduces the maximum amount of interest they can claim, how personal exemptions work, and changes to taxes on home equity loans. Here is a how the new tax laws might affect a homeowner.

Change to the Standard Deduction

The biggest change in the 2018 tax code is the amount of the standard deduction. For 2017, the standard deduction was $6,500 for single taxpayers and $13,000 for married couples who filed jointly. For this year the deduction was raised to $12,000 for individuals and $24,000 for married couples.

In addition, if homeowners filed as head of household in 2017, they qualified for a $9,550 standard deduction. in 2018 that deduction is $18,000. These changes mean that many taxpayers now get a better deal by taking the standard deduction as opposed to itemized deductions.

Changes in Personal Exemptions

Another big change is that homeowners can no longer claim personal exemptions on their taxes. Before the 2018 tax season, tax payers could deduct $4,150 from their income for each member of their family. Now, personal exemptions are a thing of the past. Most people should come out ahead with the increase in the standard deduction depending in large part on the size of their family.

Changes in the Mortgage Interest Deduction

When it comes to a home mortgage, whether the new tax laws affect it or not depend in large part on where homeowners live. If they live in an area where home prices are high, they should expect to get less benefit for their mortgage, especially if their home mortgage is over $750,000.

The decrease in the amount of interest a homeowner can write off for their home loan amount has dropped from $1 million to $750,000. This means that if they are a homeowner with a home mortgage of over $750,000, they cannot claim any interest beyond that amount as a write off on their taxes. Keep in mind, if their home loan was in place before December 14, 2017, it is grandfathered in under the old tax laws.

Changes to Home Equity Loans

If a homeowner plan on getting a home equity line of credit (HELOC), keep in mind that the tax laws have changed in regards to what they can use the equity for. To write off the interest on a HELOC or second mortgage, they must use the proceeds from the loan to improve the home. Plus, the combined total of what they owe on the original mortgage, in addition to the home equity loan, cannot go over the $750,000 limit.

Property Tax Deductions

Another area that homeowners should expect to see a reduction is in the amount of state and local taxes they can claim as an itemized deduction. For 2019 tax season, homeowners can only claim up to $10,000 for all of the state and local taxes they pay combined, or $5,000 if they are married filing separately. Homeowners in high tax areas, such as New York and California can expect to lose the most.

As a homeowner, it is important to know the new tax laws. Knowing about the changes in the amount of interest homeowners can claim, the changes in the standard deduction, and the repeal of personalized deductions can allow them to properly plan their next home purchase.






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