Tax Reform Changes for Homeowners

Editor’s Note: This article was originally published on January 25, 2018. 

Owning a home is one of the largest investments a taxpayer can make, and with this investment comes several tax benefits. Taxpayers who are contemplating the purchase of a home should be aware that the tax reform bill has changed homeowner tax benefits starting with tax year 2018 (the return you’ll file in 2019) and continuing through tax year 2025.

Mortgage Interest Deduction and Tax Reform

Old law: Before tax reform, homeowners could deduct the interest they paid on a mortgage of up to $1 million. In addition, taxpayers who had home equity loans could deduct the interest if the value of the loan was $100,000 or less.

New law:  With tax reform, the mortgage limit for the interest deduction is reduced from $1 million to $750,000, which will reduce the value of the deduction for large mortgages. The new law also eliminates the deduction for interest on home equity loans that were not used to buy, build, or substantially improve the taxpayer’s main residence. The $750,000 limit does not affect mortgages taken out before December 15, 2017, although home equity interest is no longer deductible after December 31, 2017.

Real Estate Tax Deduction and Tax Reform

Old law: Before tax reform, taxpayers could deduct state, local and foreign real estate taxes they paid during the tax year, with no cap on the amount.

New law: With tax reform, income, sales, personal property and real estate tax deductions are capped at $10,000 for all state and local taxes.

These changes mean that taxpayers’ housing-related itemized deductions will now be limited. This may lead to a higher tax liability for some taxpayers. For example, taxpayers who paid real estate taxes in excess of the cap on their home can no longer deduct the full amount.

Casualty Loss Deduction and Tax Reform

Old law: Under prior law, taxpayers could deduct unreimbursed casualty, disaster and theft losses on their residence and personal use property.

New law: Congress has repealed this deduction, except for losses on property located in a federally declared disaster area and sustained because of the disaster. Casualty and theft losses on property used in a business are still deductible.

Have Additional Tax Reform Questions as a Homeowner?

Knowing that the benefits of the past may no longer be available to you as a homeowner is a first step in determining the impact to your taxes. For more advice regarding the impact of tax reform for homeowners, schedule an appointment with your nearest H&R Block tax professional.