In this column for PBS NewsHour, Rianka breaks down some of the new tax laws for homeowners.
The tax overhaul Congress passed in late 2017 generally simplifies filing for millions of families in America with an increased standard deduction, but it can also limit some deductions that may have saved you a lot of money in the past. Homeowners, in particular, have several new deduction limitations to keep in mind when filing this season.
Here’s what you need to know to make the best decisions when filing your taxes this season and when planning ahead for future years.
1. The cap on mortgage interest deduction
In the past, if you itemized your tax return, you could deduct any interest payments made on up to $1 million in home-related debt. This debt had to be used for:
Purchasing a home
Building a new home
“Substantially improving” a home
Under the new tax law, homeowners can only deduct mortgage interest paid on up to $750,000 on a first or second home. This new law only applies to homes purchased after Dec. 15, 2017.
This filing season: All other homes are grandfathered in to the old law, so if you are paying interest on debt between $750,000 and $1 million related to a home you bought before that date, your deduction will be the same. But if you bought a new home with a mortgage over $750,000, you will pay less than you would have under the old law.
Planning ahead: Many homeowners who are paying interest on a mortgage over $750,000 who purchased their home before Dec. 15, 2017, may want to consider staying put for a while. Purchasing a new home at a comparable purchase price may reduce the amount of mortgage interest you’re able to deduct.