This time of year, many people start thinking about doing their taxes. It’s a dreaded task for some, but a necessary one that we all must do. One of the perks of being a homeowner is that it provides the benefit of some tax deductions. All homeowners should be aware of these tax perks to take advantage of them and maximize their financial savings. Recently, a government overhaul of U.S. tax laws included changes that affect homeowners. While these changes will not be in place for the 2017 tax year, it is wise to be prepared for how they will affect your 2018 taxes.
The mortgage interest tax deduction is considered a way to make homeownership more affordable. Qualifying homeowners can reduce their taxable income by the amount of mortgage interest they pay. Currently, you may deduct the interest you pay on mortgage debt up to $1 million ($500,000 if married and filing separately) on your primary home and a second home. Beginning in 2018, for homes purchased December 15, 2017 and after, the numbers change to $750,000 ($375,000 if married and filing separately). There is an exception in the new tax law that allows for a refinanced mortgage loan to be given the old loan’s origination date. This means if the old loan originated prior to December 15, 2017, the old limit of $1 million would apply.
The tax law through 2017 allowed homeowners to reduce their taxable income by the total amount of property taxes they paid. Starting next year, the deduction will be limited to a total of $10,000 for the combination of the cost of property taxes, state and local income taxes or sales taxes.
Up through your 2017 tax return, the tax law allowed for an added deduction for interest paid on home equity debt “for reasons other than to buy, build, or substantially improve your home.” In other words, if you took out a home equity line of credit to do something like pay tuition, the interest you paid on that line of credit was tax-deductible. Starting next year, this deduction will be eliminated.
As stated above, you may deduct interest on mortgage debt on both your primary home and a second home. The new law changes this a bit for 2018. It reduces the amount of eligible mortgage debt from $1 million to $750,000.
While it was a complicated process that involved criteria such as distance and timing of a move, up through this year the tax law allowed you to deduct some moving expenses if you moved for a new job. Starting in 2018, only active-duty members of the armed forces will be allowed to deduct moving expenses.
If you find the tax laws confusing, you are not alone. It is smart to ask a reputable accountant any questions you may have so that you can maximize the tax perks of being a homeowner!