While many analysts are crediting the new tax law signed by President Trump in December with kicking the economy into high gear— certain homeowners may get kicked somewhere else come tax time. The law puts new limits on home mortgage interest deductions. Will they affect you?
Here's how the changes in tax law will affect homeowners in 2018.
Most of our listeners won’t have to worry about how the Tax Cuts and Jobs Act of 2017 might affect their mortgage interest deduction because for the vast majority it just won’t.
That's the case for two reasons: a.) the size of mortgages involved and b.) the increase in the standard deduction. Where listeners could be affected is home equity loans. The new law eliminates the prior interest deduction on up to $100,000 of home equity loan debt unless the money was used to buy, build or improve the home that secures the loan.
Regarding the amount of your loan - from now until tax year 2025, the new law generally allows you to deduct interest on up to $750,000 of mortgage debt to buy or improve your first or second residence. For married couples filing separately, the debt limit is $375,000. The prior limits were $1 million and $500,000 respectively.
The Standard Deduction has been increased dramatically. The new law nearly doubles the standard deduction for 2018 compared to 2017. For married couples filing jointly, it’s now $24,000 compared to $12,000 in 2017.
For heads of households the standard deduction is now $18,000 compared to just over $9,000 in 2017. For singles and couples filing separately, it’s $12,000 - almost double that of last year.
While some homeowners will lose their mortgage interest deduction because they won’t have enough interest to itemize, that will be offset to a great extent by the increase in the standard deduction. The bottom line is that most homeowners won’t be affected much by the new tax changes only if you have a very high end mortgage or you you take out a home equity loan for something other than buying, building or improving the home. It’s always a good idea to consult with a tax professional on how the changes could affect you. You can find accountants and other financial experts who have earned the certified kingdom advisor designation at moneyise.org.
Next, Rob and Steve answer some listener questions at 800-525-7000 or via email at Questions@MoneyWiseLive.org:
- At 64 years old, currently working part time, no mortgage or debt, how do you set a goal for retirement?
- If you make pay deposits into your savings account, are there limitations on transfers out of savings and into checking?
- Have the new tax laws changed the way withholding is figured?
- If you owe about 4 years on $50,000 mortgage, should you continue to pay it at the statement value or should you pay it off more aggressively?
- If you and your spouse are in your early 50s, have long term care insurance through your employer, should you consider looking to secure more?
- If you're getting married in 6 months and your finance has great credit but you don't, how do you build credit?
- If you have a small business and have accumulated $25000 of personal debt and $35000 of business debt, should you consider take money from mutual funds to pay off the debt?
- Why is it recommended to keep personal and business finances separate?
What are the benefits of filing your tax return as married instead of separately?
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