How the New Tax Law May Affect Your Mortgage

April 23, 2018

At the end of 2017, President Trump signed into law the Tax Cuts and Jobs Act. The good news for most Americans was an overall reduction in marginal tax rates, together with a substantial increase in the standard deduction.


Specifically, the new law increased the standard deduction for single taxpayers from $6,350 to $12,000, and for married couples from $12,700 to $24,000.


However, it also restricted taxpayers' ability to deduct home mortgage interest, moving expenses, state and local taxes and certain other related costs. Here are some of the most significant changes and how they may affect you.


Home mortgage interest deduction


The old law:  You were allowed to deduct the interest on mortgage debt of up to $1 million. You could take advantage of this cap on up to two homes - your primary residence and your second home. (The cap on principal that qualified for the deduction was $500,000 for married couples filing separately, but an unmarried individual could still deduct the interest on up to $1 million per property.)


The new law:  For all homes bought on Dec. 15, 2017 or later, you can only deduct the interest on up to $750,000 of mortgage debt. If you are married and filing separately, the cap is $375,000 per spouse.


The cut-off:  The more favorable tax treatment under the old law applies to all mortgages dated prior to Dec. 15, 2017. If the mortgage is dated Dec. 15 or later, the new tax law applies.


Finally, if you refinance a mortgage that was dated prior to Dec. 15, 2017, you will still get the benefit of deducting the interest on up to $1 million in principal.


Home equity loan interest


The old law:  Prior tax law allowed you to deduct interest on up to $100,000 in home equity loans. For married individuals filing separately, the cap was $50,000.


The new law:  Home equity loan interest is no longer tax deductible in any amount.


Limitations on state, local and property tax deductions


The Tax Cuts and Jobs Act restricts individuals' ability to deduct property taxes and other state and local taxes against their incomes.


The old law: For 2017 and prior, you could deduct an unlimited number of state and local taxes from your federal taxable income - subject to some limitations under alternative minimum tax rules.


The new law: You can only deduct up to $10,000 in total in state and local income taxes. This provision will have the most effect on those in states with high state and local taxes, as well as those who have expensive properties that generate significant property taxes. For those who are married and filing separately, the deduction is capped at $5,000.


Moving expenses


The old law:  Until 2017, you could deduct certain relocation costs if you moved for a new job located more than 50 miles away. There were a series of complicated "time and distance" rules that governed the deductibility of moving expenses.


The new law:  Only active-duty military personnel and their families may deduct moving expenses.



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