While most folks are enjoying an increase in take home pay as a result of the TCJA (Tax Cuts and Jobs Act), understanding how the Act affects mortgage interest deductions is important. The legislation includes an increase of the standard deduction, which eliminates the need to claim the mortgage interest deduction at all for many tax payers. However, if your deductions exceed the standard amount ($12,000 for individuals and $24,000 for married couples filing jointly), you should be knowledgeable on what is allowable under the new rule. Here is a summary:
1. If your home loan was originated prior to January 1, 2018, and the loan was taken out to acquire, construct or substantially improve the home, the interest is still deductible.
2. Interest paid on Home Equity Loans are no longer deductible regardless of the origination date.
3. Interest on a mortgage taken out to refinance a previous loan will not be deductible.
4. The maximum mortgage amount allowed to deduct interest is $750,000.
5. If more than one house is owned and financed (for example; a lake home, ski home, country cabin, etc) only two can be used as mortgage interest deductions. So, if you have a primary residence with a mortgage and a second home with a mortgage and a third home with a mortgage, you can only count two of the properties as eligible for interest deduction. The properties selected can change from year to year which allows a home owner to choose the home loan with the highest interest rate to deduct.
While this is not a comprehensive list of the changes, it should help in making a decision on whether to refinance or to purchase. There are different methods available for calculating the allowable deduction and it is advisable to consult a tax professional for specific advice regarding this issue.
Clark Real Estate
305 W. Moana Ste C
Reno, NV 89509