Remember the TCJA of 2018? No? Need a little memory jog? The TCJA is the Tax Cut and Jobs Act of 2018 that was signed in December of each year and made multiple changes to the tax code that covered several areas, including how the tax code addressed mortgage interest deduction and Home Equity Lines of Credit, or HELOCs. If you took out a mortgage in 2018 it’s possible these new changes will affect how much interest you can deduct on your 2018 taxes, but unless you’re buying on the higher end, say a home approaching $1 million or more in price, you probably won’t notice very much. That is as it relates to a first lien home loan.
Mortgage interest has been a standard deduction for most homeowners for years and is certainly one of the more popular. The biggest change reduced the loan limit on which mortgage interest can be deducted from $1 million dollar mortgage to a $750,000 mortgage. When you compare the national median home value today somewhere near $240,000, these new limits won’t affect that many home owners. But for those living in higher cost areas and fall into the upper tier tax brackets, they will indeed see some changes.
Another change relates to HELOCs. A home equity line of credit is indeed a revolving line of credit using the home as the collateral. In 2018, the deductability remains closely the same as long as the funds were used to substantially improve the property. If the funds were used for any other purpose such as paying for college or simply taking a vacation, mortgage interest is not deductible.
In addition, the deductions for state, local and property taxes, sometimes referred to as SALT, have limits. The new limits for SALT deductions is now $10,000 but again primarily affect higher income earners.
Other changes implemented in 2018 affect:
• Higher standard deduction to $12,000 for single filers and $24,000 for joint filers
• Personal exemption eliminated entirely
• Income tax rates reduced for most filers
• Child tax credit boosted
• More medical expenses allowed
There are many other changes but these are the ones most commonly addressed when filing income taxes. Finally, this information is not considered tax advice. For information on how these changes affect your personal situation, you need to speak with your tax professional.