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We're getting numerous questions about the impact of new tax laws on the benefits of owning a home. Below are some key provisions you'll want to understand....
Mortgage Interest Deduction: Interest is now only deductible up to $750,000 in loan indebtedness (versus $1,000,000 previously). This means if you have a $1,000,000 loan, only 3/4 of your interest is deductible. The cap only applies to new loans acquired after 12/15/2017.
Second Home Interest Deduction: Many feared the tax changes would eliminate mortgage interest on 2nd homes. However, this deduction is still eligible as long as total indebtedness between the taxpayer's primary home and 2nd home is less than the $750,000 limit mentioned above.
Rental Properties: The tax changes don't affect rental properties as far as mortgage interest deductibility and property tax deduction caps. Also, rental property owners may be able to achieve the new 20% deduction allowed for businesses. More information to follow in the coming months with future updates.
Home Equity Loans & Lines of Credit: Despite misconceptions about the new rules, home equity interest is still deductible, just not is as many circumstances as pre tax-reform days. Home equity interest is now only deductible when used to buy, build, or substantially improve a home. No longer can you deduct home equity interest used to pay off personal debt.
Capital Gains Exclusion on Primary Homes: Tax reform did not eliminate the popular capital gains exclusion of $250,000 ($500,000 if filing joint) on the sale of primary homes that the taxpayer lived in for two of the previous five years.
SALT Cap: The SALT deduction (State And Local Taxes), namely state income taxes and property taxes, are now capped at $10,000 in total deductions. While this appears to be a big hit towards higher income earners, it's not as bad as it seems since most were subject to AMT on these taxes, limiting the deduction anyway.
In the end, homeownership maintains its tremendous benefits, and most people will still be taking advantage of itemizing their deductions.
Feel free to contact us with any questions on how these new tax laws affect you specifically...we're happy to help!