The Tax Bill and Homeownership
The House and the Senate have agreed on a compromise plan for the tax bill. This is how the compromise bill could change homeownership.
Mortgage interest deduction
The mortgage interest deduction is explained as a way to make homeownership more affordable. The compromise bill cuts the federal income tax that qualifying homeowners pay. This is done by reducing their taxable income by the amount of mortgage interest they pay. The deduction will be reduced to interest up to $750,000, instead of the $1 million for anyone who buys a home after December 15, 2017. Anyone who is under contract to buy a home before December 15, 2017, will also be subject this deduction if they are scheduled to close by January 1, 2018.
Another exception to this section of the bill relates to when you refinance a mortgage. The new compromise bill will treat the new loan as if it were originated on its original date. This means the old $1 million limit would apply.
Home equity deduction
In addition to mortgage interest deduction, the current tax law adds a deduction for interest paid on home equity debt. This applies to anything other than to buy, build, or substantially improve your home, such as borrowing a home equity line of credit to pay for school tuition. However, the compromise bill eliminates the deduction for interest paid on any home equity debt.
Property tax deduction
The current tax law allows qualifying taxpayers to reduce their taxable income by the total amount of property tax they pay. The compromise bill limits the deduction to $10,000 for the total costs of property taxes and state and local income taxes.
Mortgage interest deduction for second homes
The current law allows you to deduct interest on mortgage debt on a primary and secondary home. The compromise bill has voted to keep the part of the tax bill in place. However, it reduced the amount of eligible mortgage debt to $750,000.
Capital gain exclusion
Capital gain is the difference between the price you paid for a house and the price you sold it for. It is treated as a taxable income. If you have owned the house long enough, you can exclude $500,000 as income so you don’t have to pay federal income tax on it. The compromise bill doesn’t alter the capital gain exclusion for homes.
Under the current law, anyone may deduct some moving expenses if you are moving for a new job. However, the compromise bill only allows members of the armed forces on active duty would be allowed to deduct moving costs.