3 Ways the 2018 Tax Codes May Increase Costs for Homeowners

In recent weeks, prominent leaders of the Republican party have made boasts regarding their new tax bill. The reform, they claim, will work to provide significant tax relief to both current homeowners and those who wish to own, and preserve the interest deduction levels on all mortgages. However, that is only the basic mission statement provided for the bill which in reality is much more complex than it seems on the surface.

Of particular note here are the tax deductions at the federal level for mortgage interest rates. That's because these deductions are, curiously, not part of the breaks that are set to appear this year as part of the Tax Cuts and Jobs Act. This is the name of the act that became law last Friday when President Donald Trump affixed his signature to it. While the deductions in question are still available for the 2018 tax season, they will be smaller and much less valuable for many homeowners. And that's not the only change coming soon to your home-owning taxes. Several other home equity debt categories are slated to lose their deduction status later this year.

With all of that said, there are three primary changes to the tax laws that you should be aware of for the 2018 season. One or more of these items could have a dramatic effect on how you handle the taxes related to your home this year.

1. Less Deductible Mortgage Interest

If you are a taxpayer who took out a mortgage on Dec. 8, 2017 or later, you'll be able to deduct interest on the debt up to a total sum of $750,000. This figure changes to $375,000 for any married couples who have chosen to file their returns separately, however.

While that number may seem high enough at first glance, it's worth noting that it was higher still before the new law went into effect. Previously, the interest you could deduct went up to $1 million for a single filer or $500,000 for the married couple filing separately. The silver lining with this change is that any taxpayers who took out mortgages before the Dec. 15 cutoff date will still be able to deduct interest using those increased figures.

2. Elimination Of Deductions For Home Equity Interest

Prior to the new changes in the tax code, you would have been able to deduct interest on your home equity debt, provided it totaled up to $100,000 or half of that if you were part of a couple filing separate forms. However, this is no longer the case. As of the beginning of this year, you will no longer be able to deduct such interest even if you qualified for it during the previous year.

3. No Deductions On Lines Of Credit

HELOCs, or the lines of credit that are extended to you for home equity, were also deductible under the previous system. This is similar to the previous change because it affects both of them. The lines of credit and the standard interest that accrued were both deductible up to $100,000 or $50,000 depending on your family and filing situations. Now, neither HELOC debt and standard home equity loan debt cannot be made more palatable through any deductions.

These three big changes took effect at the start of the new year and are set to expire on Jan. 1, 2026. What that means is 2017 will be your last chance to receive better deductions for your mortgage interest or other debt. After that, it will be nearly a decade until you might be eligible once more. Even this eligibility assumes you were able to get these deductions during the period in which the previous tax code was active. If you are already considering purchasing a new home, take into account the new, lower threshold for the interest and weigh it against your options for renting or buying.

Unfortunately, if you currently hold any outstanding loans on your home equity or a HELOC, the interest for these items is no longer tax deductible as of this year. If you have any insights to offer with regard to these changes, we encourage you to share them with us below.

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