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The new tax law just signed by the president had some homeowners in high-tax states standing in line at the end of the year to pre-pay their property taxes. While this wasn’t initially on the agenda for the holidays, there was so much uncertainty that some thought they’d get a jump on the situation. Let’s clear things up with some key takeaways:
- Mortgage interest deduction: Prior to the new law, homeowners could deduct interest in up to $1 million in mortgages on primary and secondary mortgages. Now, homeowners can deduct interest on up to $750,000 in mortgages on primary and secondary mortgages.
- State and local sales, income and property taxes: Under the old tax law, state and local sales, income and property taxes could be deducted from your federal income taxes. However, the new law caps federal income tax deduction at no more than $10,000 for total of all local state, income property and sales tax.
- Interest on home equity debt: You can no longer deduct interest on home equity debt, new or existing on your personal residence, unless improving the residence. Equity debt on the personal residence is deductible if it is used to finance or improve a rental property.
- Capitol gains on home sales: There has been no change, so just like under the old tax law, taxpayers can exclude up to $500,000 of gain for joint filers or or $250,000 of gain for single filers from capitol gains when selling a primary home, as long as the homeowner has lived in the residence for two of the past five years.
That’s just a quick start. For more information, talk to your accountant.
