If you’re considering the purchase of a new home this year it’s a good idea to talk to your accountant first. The new tax laws could affect your tax liability. The deduction allowances in 2018 changed significantly. Mortgage interest deductions are very different now than in past years.
Will these five changes affect your new home purchase?
A Mortgage Deduction Will Be Obsolete for Most Taxpayers
If you itemized deductions for a larger tax break, you most likely deducted your mortgage interest per the guidelines of the old tax code. Now, that may not make the most sense.
The standard deduction doubled for 2018, meaning an estimated four percent of all taxpayers will continue to file using itemized deductions. Itemizing was how mortgage interest was deducted. In short, most people will receive a larger tax benefit using the new standard deduction.
Not All Mortgage Interest is Deductible
The new mortgage cap is $750,000, down from the previous $1 million. That means if your mortgage is over $750,000, your interest may not be deductible. But, if you put enough money down and your mortgage is under the $750,000 threshold, you may get a break.
Talk to your tax attorney or accountant about this new rule before applying for a mortgage. Then you can make an educated decision before making the purchase.
A Second Home May Not Be Deductible At All
The new tax laws will not allow you to deduct mortgage interest for both your primary and vacation home. Now, you can deduct interest on one home only.
This new rule only affects NEW purchases. If you already own a second home and purchased it prior to 2018 you can still deduct the interest. Your accountant can give you more information regarding the limits for the combined deduction.
Think Twice Before Tapping Into the Equity of Your Current Home
Home Equity loans are no longer eligible for a mortgage interest deduction. wah wah wah.
The key takeaway here is that only four percent of all tax filers will be affected by the new rules. Most of us will benefit from the higher standard deduction and will not miss completing the form for itemized deductions.
If you’re interested in more information on buying a home, contact Missy at firstname.lastname@example.org or phone/text her at 843-707-6956.