Even though we are not tax professionals, we wanted to give you some general insights regarding how the new tax bill* may impact you starting this year.
If you have a large first mortgage loan amount, you will be grandfathered in to the interest deduction up to $1,000,000 of your loan as long as it closed prior to December 15, 2017. From that date, going forward, you’ll be limited to the interest paid up to $750,000 of the mortgage. One thing to note, is that the interest deduction has expressly indicated “acquisition debt” which coincides with purchase money loans and rate/term refinance loans. It remains to be seen if this will be impacted with cash out refinances in the future for tax-purposes.
If you have a large first mortgage loan amount, you will be grandfathered in to the interest deduction up to $1,000,000 of your loan as long as it closed prior to December 15, 2017
If you have a second mortgage (fixed or home equity line of credit, also known as a HELOC), the interest paid on these loans is no longer tax-deductible. (Formerly interest paid up to $100,000 was tax-deductible.) I believe that with our still-low mortgage interest rates, it may be beneficial to talk about the possibility of rolling the first and second mortgage loans into one loan through refinancing. And, in the future, cash-out refinances will be more likely vs. getting a second mortgage, since the interest paid on those are akin to the interest paid on credit cards and auto loans – no longer deductible! (However, see the paragraph above this one on commentary on interest paid on cash-out refinances.)
If you move, the rule requiring you to live in the home two of the last five years in order to exclude the net gain from capital gain income is still in place (congress wanted to raise it to five of the last eight), however, in 2008 the rule quietly changed to exclude the time you rented the home from the amount you can exclude from capital gains. This will impact people who lived in their homes, kept them as rental properties and bought new homes (or moved and rented, but retained their home as a rental), then decided to sell or move back into the home so they met the “2 of 5” limit. The IRS has issued Publication 523 that includes a worksheet indicating exactly how much of your net gain is owed as capital gains and how much is not. You can find more information and the work sheet here https://www.irs.gov/forms-pubs/about-publication-523
Other items to note:
Property tax and state tax payments are now limited to $10,000.
Unreimbursed employee expenses and tax preparation fees are no longer deductible.
Moving expenses for anyone other than military personnel is no longer a deduction.
Individual personal exemptions (in 2017 the amount is $4,050 per person listed as tax payer and dependent) are eliminated. However, the standard deductions have also increased and there is a $500 per dependent tax credit. Tax credits are much more favorable to the “bottom line” in tax preparation than tax deductions are.
Child care expenses have increased to $2,000 per child and now the credit doesn’t phase out until the AGI is over $200,000.
And the tax brackets have improved, allowing everyone to potentially pay less in federal income taxes!
*Again, this post is not intended to give you advice on your tax situation.
To find out how this new law impacts you personally, please contact your own tax advisor.
We hope you will find the above information useful as you do your tax planning under the new law.