Tax deductions for homeowners – the new tax law signed in 2018 for taxes filed in 2019 – information is below.
**Please note that I am not a tax professional and no one should take this post as tax advice. Please contact a tax professional to find out if information listed below is correct or if it applies to you, as well as the appropriate way to apply any deductions to your taxes and situation.**
The below information is for tax year 2018 (filed in 2019) taxes shared from the website “HouseLogic”, a website from the National Association of REALTORS(R). Thank you to HouseLogic for the breakdown!
The first big change is the Standard Deduction.
The standard deduction (which is the amount that people may be qualified to take if they don’t itemize deductions) is much higher this year from last year. For example, the Standard Deduction for married, joint-filing couples is now $24,000 (it used to be $13,000.) The standard deduction for heads of households is now $18,000, which used to be $9,550. Single filers have gone up to $12,000 for their standard deduction, up from $6,500.
The next big change is that the “personal exemption” was repealed.
A filer used to be able to exempt $4,150 of their income for each member of their household. Though an individual may come out ahead with the higher standard deduction, depending on their household size and makeup, including ages of children and dependents (and how they file,) this could potentially affect many.
The Mortgage Insurance Deduction cap has been reduced.
The new law from 2018 caps the mortgage interest one can write off to loan amounts of $750,000 or less. If you had your loan in place by December 14, 2017, your loan should be grandfathered in, and the cap would remain at $1M for only those loans.
State and Local Tax Deduction (AKA SALT) and Its’ Effect Depends on Your Location and Situation.
The new tax law from 2018 says one can still deduct their local and state taxes if they itemize instead of taking the standard deduction, but that the cap on what they can deduct is $10,000 for all of their state and local taxes combined. This hits people in areas where state and local taxes come to more than $10,000, which can happen in 20 states out of 50! (See this article on SmartAsset for more information on the SALT deduction for Maryland. Maryland is one of the 20 states where tax filers may be affected.)
No Change in Rental Property Deductions.
Really Big Change in Home Equity Loans.
If you itemize your deductions, the interest on a home equity loan or second mortgage may potentially still be written off, but only if you used the proceeds to substantially better your home. Also the TOTAL, COMBINED loan with your first mortgage, cannot exceed the $750,000 cap ($1M if the loans were in place by December 14, 2017 – see the Mortgage Insurance Deduction Cap information above.)
NOTE: Earlier loans are NOT grandfathered in terms of what the money is spent on. If you have a home equity loan and it is or was used to pay for something like tuition or a car or a boat, it appears you no longer can write off the interest on that home equity loan or second mortgage. Check with a tax accountant to find out if and how this may affect you if you have a home equity loan on your house.
There are some big changes in the tax law that homeowners should be aware of and follow. A tax accountant can help you navigate these tax changes. Please contact a tax professional to ensure you itemize correctly! Again, I am not a tax professional, and you should not rely on the above information as tax advice in any way.