With tax season approaching, many homeowners may be confused about what they can and can’t write off due to changes introduced in the new tax code.
For example, one of the biggest changes is that homeowners who used to write off interest paid on their mortgage and property taxes, might not be able to do so anymore. Still, that doesn’t necessarily mean they’ll have to pay more taxes, as it depends on their exact circumstances.
With the new tax code, the standard deduction every tax filer gets has nearly doubled, to $24,000 for married couples who file jointly and $12,000 for single filers. As such, this means that most people will probably be better off taking the standard deduction, as opposed to itemizing their write-offs.
For more information, the National Association of Realtlors’ HouseLogic website provides plenty of guidance on the new tax rules.
Unfortunately, the new rules also mean that the number of homeowners who’re able to deduct mortgage interest will fall by around 56 percent, affecting some 18 million, the NAR said.
These people won’t be facing higher taxes, but they will no longer receive any tax incentive for buying or owning a home, Evan Liddiard, NAR’s director of federal tax policy, told HouseLogic.
The problem is that the new tax code caps mortgage interest at $750,000, though loans in place before Dec. 15, 2017, will be grandfathered in under the older rules, where $1 million was the maximum allowed. This means that homeowners who live in more expensive markets won’t be able to write off interest paid on debt over that $750,000 cap.
In addition, under the new code, tax filers cannot deduct more than $10,000 for all state and local taxes combined—whether the filer is single or married. Prior to the tax change, the majority of homeowners in about 20 states were writing off more than $10,000 in SALT deductions each year.
“This is going to hurt people in high-tax areas like New York and California,” Lisa Greene-Lewis, a TurboTax expert, told HouseLogic. For example, homeowners in New York were taking an average of $22,000 per household in SALT deductions.