On The Shore On The shore — 30 March 2018
How the new tax law will affect homeowners

By Robyn A. Friedman

City & Shore Magazine

You might have already seen the effects of the Tax Cuts and Jobs Act in your paycheck — or perhaps you work for one of the many companies that have given bonuses to their employees in response to its adoption. But the new tax law, which became effective on Jan. 1, also affects homeowners — particularly luxury homeowners, many of whom may not be pleased by the law’s effect on their bottom line.

One of the biggest changes involves the deductibility of mortgage interest, a deduction that has helped to encourage homeownership through the years. For those who deduct mortgage interest on their tax returns, the new law provides that for mortgages taken out after Dec. 14, 2017, you can only deduct interest on indebtedness up to a total of $750,000. Previous law allowed deductions for up to $1 million in mortgage indebtedness.

Another change involves property taxes. Previous tax laws allowed you to deduct an unlimited amount of state-and-local income and property taxes. So, those living in high-tax states like New York and California could previously deduct the entire amount of state and local taxes they paid, as well as property taxes on their home. No more. The new law places a $10,000 cap for taxpayers on combined property tax and state-and-local tax deductions. These limitations don’t apply to all taxpayers, of course, but they will disproportionately affect those living in high-cost housing markets, who will no longer be able to deduct their full out-of-pocket costs for these taxes.

“The affordability of homeownership may be impinged by these tax law changes,” says Stephen G. Rosen, a certified public accountant in Boca Raton. “Likewise, homeowners looking to sell may see a decreased market for high-value homes.”

One final tax change for homeowners: Deductions for home-equity-loan interest for those tapping their equity to pay for college costs, medical expenses or to consolidate bills are no longer allowable. The new tax law eliminates the interest deduction from 2018 through 2026 — unless the proceeds from a home-equity loan, line of credit or second mortgage are used to “buy, build or substantially improve” the home securing the loan.

To offset some of these limitations, the new tax law nearly doubled the standard deduction, with the intention of shifting taxpayers away from itemization. Be sure to consult your tax advisor for more information.

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