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2018 New Tax Law effects on home mortgage deductions

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 Overview of New Home Mortgage Deductions

Congress passed the new tax bill at the end of last year. What does it mean for homeowners? How do the changes affect mortgage interest deductions on your 2018 forms?

Part of the goal was to simplify the massive tax code and make it easier to file. Whether it will prove easier or not, allowing Americans to use the standard deduction instead of itemizing is one big change.

Changes

The new law nearly doubles the standard deduction to $12,000 (from $6,350) for single filers and $24,000 for married couples (from $12,700) . That means a lot of people who previously filed itemized forms will be able to file the standard deduction. The law caps mortgage interest deduction at $750,000 on new homes (purchased after December 15, 2017). This will primarily affect expensive real estate markets in coastal areas like New York and California. It might also freeze new home purchases at the upper end since the tax bill will be higher.

Also, home equity loans are no longer deductible under the new law unless they are used to improve the home. Additions and upgrades count, money to pay off other debts does not. The previous tax law had no requirement.

Housing Market

Mortgage rates have risen slowly all year but they are still historically low at around 4%. New home buyers should consider buying soon to prevent paying higher rates later. Rising interest rates affect a buyer’s purchasing power. An increase of just 1% decreases the purchasing power by 10%.

Some housing experts predict an increase in rates over the next few years. Most people won’t see their tax obligation change significantly but the housing market may be getting more expensive.

Our experts would be happy to help with any mortgage interest questions or general tax information you might have.

 


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