While the passage of the Tax Cut and Jobs Act (TCJA) has introduced many changes, one thing hasn’t changed: Owning a home could offer yearly tax advantages and the opportunity for long-term appreciation. And there’s no price you can put on the pride of homeownership.
Mortgage Interest Deduction. The interest you pay on your mortgage may still be tax deductible, but the maximum loan amount has been lowered from $1 million to $750,000. The mortgage interest deduction includes any interest paid on loans used to purchase, build or significantly improve a primary residence or second home, up to $750,000.
Points Paid When Borrowing (Pre-paid interest). As points are considered interest (pre-paid interest), buyers get to claim their points as part of the $750,000 mortgage interest deduction for the year the points were taken.
Property Taxes. Previously you could claim all the property taxes you paid to state and local governments. The new law bundles both your sales and local taxes (SALT) and your property taxes and caps the limit at $10,000.
Second or Vacation Homes. You can still deduct interest on your two combined mortgages (first home and second home), but the limit was reduced from $1.1 million to $750,000.
Modifications to a Home for Health Reasons: If medically required, home improvements can be deducted, if they DON’T add value to the home. Example: If the improvements cost $50,000, and improved the home’s value by $20,000, the homeowner could deduct only $30,000. Income and age factors also apply.
WHAT HASN’T CHANGED:
Capital Gains Exclusion: Homeowners are still able to exclude from taxes gains up to $250,00 ($500,000 for joint filers) on the sale of their homes. Your home must have been a homeowner’s principal residence for two of the preceding five years and the owner may not have claimed the capital gains exclusion within the prior two years.
Regardless of the new law, homeownership continues to provide potential tax benefits.