When concerns over the 2018 tax law changes arose one of the areas homeowners were concerned about was the elimination of the mortgage interest deduction. Another area of concern were property tax deductions. As Congress moved, many feared both deductions were going to be eliminated entirely. Which would have been catastrophic for many American homeowners and especially those in high cost real estate states.
Both property tax deductions and mortgage interest deductions were impacted by the changes in tax law, but neither were eliminated entirely. Instead, they were modified. The changes include:
Real estate property taxes – total state and local taxes eligible for deduction are now capped at $10,000. This is where most homeowners could be hit as a typical home in higher cost states easily generates property tax of $5,000 to $7,000 for a $300,000 home. So homes assessed at a higher value by tax auditors will likely feel this new limitation take effect.
Mortgage interest deduction – the new laws cap the eligible debt at $750,000. Loans originating prior to the law change date are still eligible up to $1 million. However mortgages created after the enactment date will be subject to this change. That said many home buyers won’t fall into this bracket so for the majority of American homeowners this change won’t be felt.
Standard deduction increase – the above deductions are only useful to the extent that a tax filer itemizes his deductions. With a standard deduction capped at $12,000 for an individual and $24,000 for a married couple filing jointly.
The option to itemize could become unnecessary if the standard deduction provides a higher level of tax savings overall. However the standard deduction increase is not entirely positive since personal exemption has been eliminated, reducing the benefit of the higher standard deduction by as much as $4,150 per person.
Changes to this years tax deductions have not wiped out benefits for mortgage holders entirely. Instead the real impact will depend on which changes apply to a specific taxfiler’s situation. It could be the case that two homeowners in the same town with a home of similar market value end up having very different tax results with the 2018 changes.
So as a Mortgage-holding taxfilers you will be better off seeing how the first tax year plays out before you make any drastic decisions.