We are not here to ring the alarm, only to remind you that the new tax laws are now in effect — for example, many homeowners who used to write off their property taxes and the interest they pay on their mortgage, will no longer be able to do so. The standard deduction, that everyone gets, has almost doubled under the new law. It’s now $24,000 for married, joint-filing couples (up from $13,000). It’s $18,000 for heads of household (up from $9,550). And $12,000 for singles (up from $6,500).
The number of homeowners who will be able to deduct their mortgage interest under the new rules will fall from around 32 million to about 14 million, that’s about a 56% drop. So, will you be able to itemize, or will you be in standard deduction zone? That depends! This calculator can give you an estimate. Because the personal exemption was repealed, you can no longer exempt from your income $4,150 for each member of your household.
The new law also caps the mortgage interest you can write off on loan amount of no more than $750,000. However, if your loan was in place by Dec. 14, 2017, the loan is grandfathered, and the old $1 million maximum amount still applies. This should not be a problem for most people, since most people do not have a mortgage larger than $750,000.
While you can still itemize and write off property taxes, with the new tax code, you cannot deduct more than $10,000 for all your state and local taxes combined, whether you’re single or married. This may not be good news for some homeowners that were used to writing off more than $10,000 each year.
If you are a landlord however, there are no limits on the amount of mortgage debt interest or state and local taxes you can write off on rental property. You also get to write off operating expenses like depreciation, insurance, lawn care, and utilities on Schedule E. Finally, if your mortgage is over the $750,000 cap, you may want to pay it down fast, to bring it below the cap. You can do this by paying extra principal each month or make a 13th payment each year. Please consult your tax advisor for more information. I hope this information was helpful.