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There are many potential tax benefits related to owning a home, many of which have been altered by the Tax Cuts and Jobs Act (TCJA) passed into law in late 2017. The following is a summary of some of the more impactful changes.
Home-related itemized deductions
Property tax deduction. The TCJA capped the total deduction available for all state and local taxes, including property taxes, at 10,000. Previously, property tax was fully deductible with no cap.
Mortgage interest deduction. You can now generally deduct interest up to a combined total of $750,000 of mortgage debt incurred on or after December 15, 2017, to purchase, build, or improve your principal residence or a second residence. Debt incurred before this date is grandfathered in with the pre-TCJA debt limit of $1 million.
Home equity debt interest deduction. The home equity interest deduction is still available, but generally only if the debt is used for home improvements. Previously, you could deduct the interest on home equity debt used for any purpose.
Mortgage insurance premium deduction. While there were no changes to this item included in the TCJA, it is worth mentioning that the deduction for certain mortgage insurance premiums expired at the end of 2017. As of the date of this article, no legislation has been enacted to extend this tax benefit.
Home office deduction. If you are self-employed, you can still deduct your home office expenses against your self-employment income. However, the TCJA eliminated all miscellaneous itemized deductions. Previously included in miscellaneous itemized deductions was the home office deduction as an unreimbursed employee expense. As such, if you were claiming a home office deduction as an employee, you will no longer be able to do this beginning in 2018.
Moving costs. The deduction for moving costs has been suspended under the TCJA. For information on this change, click here.
It is important to note that perhaps the most significant change affecting the relevance of these home deductions is the increase of the standard deduction amount. The standard deduction increased from $6,350 in 2017 to $12,000 in 2018 for individual taxpayers and from $12,700 in 2017 to $24,000 in 2018 for married filing jointly taxpayers. What this means is that you will only benefit from these itemized deductions related to home ownership if all of your combined itemized deductions are greater than the new standard deduction amount. Many taxpayers who previously itemized their deductions may find it is more advantageous to take the standard deduction this year because of the increase, and will, therefore, not be able to realize the benefit of the home-related itemized deductions listed above.
Other home-related tax-breaks
Credits for “going green”. There is a tax credit available for certain home upgrades related to renewable energy. For more information on this credit, click here.
Home sale gain exclusion. If you sold or are planning to sell your principal residence, the home sale gain exclusion is still available under the TCJA. For more information, click here.
Additional rules and limits may apply when calculating the tax benefits of homeownership. To learn more, contact us. We can help you determine which home-related benefits you are eligible to claim on your 2018 return and beyond.