The new tax laws are now in full effect, and it has left many homeowners uncertain about the impact it will have on their tax bills. How have mortgage interest deductions changed? Is your home office still eligible? It can seem difficult to understand how taxes are changing for homeowners.
Your taxes may have become more complicated under the new tax law, with fewer deductions available and changes to your returns. Tax law has never been easy to follow for many people, but with so many shifts and adjustments in one year, many are finding headaches when they work on their taxes.
From moving expenses to property tax deductions, here are 6 ways taxes are changing for homeowners in Rochester:
DECREASED MORTGAGE INTEREST DEDUCTION
With the new tax laws, you now can’t deduct as much mortgage interest, unless your home was purchased before a certain date.
For homes purchased before December 14, 2017, you still can deduct mortgage interest if your home is worth up to $1 million. Homes purchased after that date, however, are only eligible for mortgage interest deduction up to $750,000.
This number includes the value of all mortgages, including vacation homes and rental properties you may own. So if your properties are valued at more than $750,000 total and you carry mortgages on them, you can only deduct the interest on the first $750,000.
If you are married, the limits are the same as they are for single people. Unlike many deductions, the amounts allowable do not compound for extra taxpayers.
For homes that were refinanced, you still maintain the deduction limits based on the date your original loan was created. So, if you originally purchased your home before December 14, 2017, but refinanced it in 2018, you still can deduct interest up to $1 million in value.
A CAP ON PROPERTY TAX DEDUCTIONS
One of the main benefits of being a homeowner is that you can reduce your taxable income by deducting the amount you pay in state and local property taxes.
However, one of the ways taxes are changing for homeowners is that the amount you can deduct from your taxes has decreased. Only $10,000 is now deductible, or $5,000 if you’re married and file your taxes separately.
SPENDING HOME EQUITY FUNDS
In the past, homeowners who took out a home equity line of credit (HELOC) and used the funds for purposes other than their home could still deduct the interest paid.
Starting with the 2018 tax year, if you take out a HELOC and want to deduct interest, you must use the funds for purchasing, building, or substantially improving the property. While you can still use HELOC funds however you want, you can only deduct interest paid on funds used on your property.
Before the new tax law went into effect, anyone relocating for work could deduct some moving expenses, provided distance and time requirements were met.
Now, deductions for moving expenses only are available to active duty members of the military who are relocating.
One of the major benefits of filing taxes has always been the ability to itemize deductions. Charity donations, home office expenses, and more all qualified for itemization as long as you had already hit the threshold for standard deductions.
You even could itemize any property taxes paid over and above the standard deduction.
With the new tax law, however, the standard deduction has increased from $12,700 for a married couple filing jointly to $24,000. That means that most people will find it more difficult to reach the standard deduction threshold and will instead simply take the standard deduction.
HOME OFFICE DEDUCTIONS
In the past, you could deduct portions of your home if you worked from your home office. The new tax law has changed that deduction.
Now, you can only take the home office deduction if you are completely self-employed – not just working remotely for your employer – and your home office must be dedicated for that purpose and used regularly. You no longer can deduct portions of the guest bedroom/home office in your home.
CAPITAL GAINS EXEMPTION
One thing that hasn’t changed, thankfully, is the capital gains exemption.
If you sell your home and pocket some or all of the profits, you can exempt up to $250,000 of that profit as taxable income if you’re single or $500,000 if you’re married and file jointly.
Although many homeowners sell their homes and plan to purchase a new one with the profits, some homeowners do sell and use profits to pay off debt or add to retirement savings. If your home sells for less than the threshold, or you only keep a portion of the profits, you won’t have to worry about taxing any of your proceeds as income. Otherwise, only the portion of profits over the threshold will be taxable.