Find out how it will affect your wallet.
Congress ended 2017 by passing a sweeping tax reform law that changes tax rates, brackets and deductions. As the law impacts America’s homeowners, it’s important to consult with your tax advisor to determine how the changes impact your deductions. Here are some details as to what these changes could mean for you and your wallet.
Mortgage interest deductions. Homeowners will be allowed to take a mortgage interest deduction on a loan of up to $750,000. Prior to the passing of this law, the mortgage interest deduction limit was on loans up to $1 million. However, loans made before December 15, 2017 can continue to deduct interest on loan amounts up to $1 million. Interest on vacation homes, a camper or boat are no longer deductible. This change could affect areas that have higher home prices like California, New York or New Jersey. However, it’s important to keep in mind that the new tax law is structured as a temporary change, with tax brackets returning to their original state in 2026.
Property tax deductions. The new law limits the state, local income and property tax deduction to $10,000. The previous law had no limit to the amount of taxes homeowners could deduct. This change mostly impacts homeowners in high-tax states and could mean more money owed to the government come April. According to ATTOM Data Solutions, over 4 million homeowners pay more than $10,000 in property taxes, so this will have an effect on many Americans.
Home-equity loans. The Interest deduction on home-equity lines of credit loans (also known as HELOC) is suspended. Previously, home owners could deduct interest paid on HELOC loans up to $100,000. One caveat is that you can usually deduct a HELOC loan if the cash is used for home improvements. In the past, a home equity line of credit was an easy way for homeowners to tap into their home equity and get cash to pay for expenses such as college tuition, a new car or for reducing credit card debt. Now, home owners may want to consider a cash-out refinance as a more affordable option to pay for big purchases. In 2026 the law will revert back and HELOC interest deductions will again be allowed on home equity loans up to $100,000.
Moving expenses. Moving expenses for work relocations are no longer deductible except for those in the military.
Capital gains. There is no change. Sellers will still be able to exclude up to $500,000 for joint filers from capital gains taxes when selling a primary residence, as long as the seller lived in that residence two out of the last five years. An earlier version of the bill had a longer time frame.
Contact your tax advisor for further clarification on the new tax bill and how it will affect your specific financial situation.