A Guide to the New Tax Plan Mortgage Interest Deduction
Are you wondering how the new tax plan mortgage interest deduction will affect your mortgage?
Traditionally, you were able to take deductions off of your mortgage interest. But with the new tax bill, this will change. You can still take this deduction — depending on the cost of your home.
The change will come with the 2018 tax year (which is the year 2019). Experts haven’t predicted changes to the housing market, but the only thing they know for sure is taxes will increase.
But as long as you claim your deductions correctly, you may avoid the the tax increase.
Continue reading to fully understand the new tax plan mortgage interest deduction and how it may affect your tax planning.
Interest Deduction Depends on the Cost of Your House
If you recently purchased your home, you can only deduct the interest on the first $750,000 of your debt. Currently, you can deduct interest on the first million you pay.
These figures constitute your primary home and combined if you have a second home.
If you’re married and are filing separately, the figures are even lower. For your primary home or your secondary home combined, you can only deduct interest on the first $375,000.
Itemized or Standard Deduction?
With this change of interest deduction, should you take an itemized or standard deduction? Experts are predicting more homeowners will drop itemized deductions. The reason why is you could potentially be paying more.
If you’re living in a high-tax state, meaning your state and local taxes are high, your taxes could increase exponentially.
Three-fourths of middle-class homeowners already take the standard deduction over the itemized deduction, and that number will drop even more.
But the Congress is doubling the amount of the standard deduction, so homeowners will save on their taxes.
Itemizing your taxes is a difficult process. One of the goals of the tax bill is to simplify taxes.
By paying more for itemizing and saving more for taking the standard deduction, homeowners save taking the standard deduction.
For Future Homeowners
The housing market is entering a revolution: Millenials are growing up, and more interested in buying their first home.
But the new tax plan may make them sign another lease on their apartment. While experts aren’t certain of housing market changes, they’re certain it will discourage homeowners from taking a mortgage.
The only predictions experts can make are for those who live in small towns. While big city homes will become more expensive, small city houses will relatively stay the same price.
To keep up with the tax plan changes, new home prices may decrease. However, with tax increases, future homeowners may not save as much as they would like.
What Will You Do When the Tax Plan Goes into Affect?
Homeowners everywhere are struggling with the tax bill’s restrictions on mortgage deductions.
Those who live in major cities will take the biggest hit. New homeowners may be attracted to decreasing housing prices, but won’t be able to deduct as much of their mortgage interest.
It’s also more beneficial to take the standard deduction rather than the itemized deduction.
The tax bill won’t fully take effect until 2019. What are your plans?
Do you want to keep up with the changing trends in mortgages and housing? Keep up with our blog.
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