There is a new tax law that was signed into effect in December of 2017 that will affect all taxpayers. Homeowners should become familiar with a few of the items that could affect them which may require some planning to help you maximize the benefits.
A few things that will affect homeowners are the following:
• There is now a reduction on the limit of deductible mortgage debt to $750,000 for loans made after 12/14/17. This will not affect existing loans up to $1 million which are grandfathered in and therefore not subject to the new $750,000 cap.
• Homeowners can refinance mortgages that were existing on 12/14/17 up to $1 million and they can still deduct the interest, as long as the new loan is not larger than the amount of the existing mortgage being refinanced.
• There is no longer an interest deduction on home equity debt through 12/31/25 unless the proceeds are used to substantially improve the home (I wonder who will determine a substantial home improvement?)
• The new standard deduction is now $12,000 for single individuals and $24,000 for joint returns. It is estimated that over 90% of taxpayers will now take the standard deduction.
• State and local taxes used to be unlimited, but now all property taxes and other state and local taxes are limited to $10,000 when itemizing deductions.
• Moving expenses are only deductible for members of the Armed Forces.
• Casualty losses will only be allowed if the loss is attributable to a presidentially-declared disaster.
The capital gains exclusion applying to principal residences has not changed. Single taxpayers are still entitled to $250,000 and married taxpayers filing jointly up to $500,000 of capital gain for homes that they owned and occupied as principal residences for two of the previous five years.
Not addressed in the new tax law, the Mortgage Forgiveness Relief Act of 2007 expired on 12/31/16. This temporary law limited exclusion of income for discharged home mortgage debt for principal homeowners who went through foreclosure, short sale or other mortgage forgiveness. Debt forgiven is considered income and even though the taxpayer may not be obligated for the debt, they would have to recognize the forgiven debt as income.
I’m not a CPA or accountant, if you need more info or clarification, contact your tax adviser.