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How the New Tax Laws Will Affect Homeowners in the Future


Although the overall impact of the new tax laws on the real estate market and mortgage industry is still to be determined, if you’re currently a homeowner, you’ll need to be aware of the new tax laws as they could affect your financial situation. Many of the changes laid out in the Tax Cuts and Jobs Act—which was signed into law back in December—won’t take effect until tax year 2018, but if you’re buying a home or getting a new loan this year, you will fall under the new guidelines.Here are the highlights of the major changes:

Property Taxes and State and Local Income Taxes: The new laws allow for an itemized deduction of up to only $10,000 property taxes and state and local income and sales taxes—combined. This is a big change and it’s why some homeowners were rushing to pre-pay their 2018 property taxes. In many areas, property taxes alone are more than $10,000, so this provision will likely affect many current homeowners and those looking to buy a home in the near future.

Mortgage Interest Deductions: For all home purchases after December 15, 2017, the cap on the mortgage interest deduction has been lowered to mortgages of $750,000 or less—down from $1,000,000 or less. This new cap is for mortgages on primary residences, second homes and vacation homes. Although the cap won’t affect many homeowners—as the average mortgage is well below the new threshold—it will affect those in high-cost areas or those who are looking to buy expensive property.

Home Equity Loan Interest Deductions: Likewise, mortgage interest deductions for home equity loans have changed. The new laws repeal deductions for interest on home equity debt unless the proceeds from a home equity loan—on loans of up to $100,000—are used to “substantially improve” the property.

In other words, if you use a home equity loan to pay off high-interest credit card debt or student loans, you’ll be out of luck in terms of claiming the interest as a deduction.

Changes to the Standard Deduction: Although this won’t just affect homeowners, it’s important to note as it will affect whether or not it makes sense to itemize deductions, i.e. mortgage interest, property taxes, etc. Under the new law, the standard deduction will be doubled to $12,000 for individuals and $24,000 for those filing jointly. For those who may have itemized deductions in the past, it may make more sense to take the standard deduction since limits on itemized deductions have been reduced.

As always, this information is not intended to be tax advice, so consult your tax professional for advice about your specific situation.

For more than 25 years, Omega Financial has been serving mortgage clients in Massachusetts. Our brokers have approximately 50 years in the mortgage business. You always will receive fast, courteous, and accurate information. Omega Financial, Inc. is a company duly licensed to operate in Massachusetts as a Mortgage Brokerage. We are located in the Town of Norwood, Massachusetts where we have been operating as Omega Financial Incorporated since 1988.

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