Itemized Deductions for Homeowners
The 2018 Tax reform has had a huge impact on Schedule A deductions. Here are five ways the Tax Cuts and Jobs Act impacted deductions related to your home.
- Property taxes- The changes to the state and local tax deductions or commonly called SALT deductions had homeowners scrambling to prepay taxes at the end of 2017. SALT deductions include property, state, and local income tax. Prior to 2018 there were no limits on the amount of SALT deductions you could take. In 2018 the limit is set to $10,000 or $5,000 if married filing separate. Property taxes associated with a business are not impacted by this limitation.
- Mortgage interest deduction- The mortgage interest deduction has been reduced but not eliminated. The interest on a mortgage up to $750,000 is still deductible as an itemized deduction and if you acquired the mortgage prior to December 15, 2017 the limit stays at $1,000,000. These figures are cut in half if you are married filing separately.
- Interest on home equity loans- The interest that you pay on this type of loan is still allowable, just the same as in prior years but with the stipulation that the funds were used to buy build or substantially improve your home or second home. You also must adhere to the total loan limits on deductible mortgage interest.
- Mortgage insurance premium deduction- In 2017 this was a last-minute extension, but the mortgage insurance premium deduction has not been renewed for 2018 yet. If this deduction does not get extended you may want to look into ways to eliminate PMI. Different financing methods or simply putting 20% down if you can, are options. If you currently have mortgage premiums it is worth looking to see if you qualify to have your PMI cancelled.
- Casualty and theft losses- This deduction has been modified but if you suffered a loss and it was due to federally declared disaster you may qualify to deduct the loss according to the prior law. If the loss was not due to a federally declared disaster, then there is no deduction allowed.
While there have been many changes that reduce itemized deductions, if you were hitting the itemized deduction limitations or getting stuck in AMT, your situation may have changed in 2018. The limitation on itemized deductions has been suspended and the AMT exemption has increased along with the exemption phase out. The phase out in prior years started at $500,000 and has increased to $1,000,000.
Contact Us with Your Questions
If you have questions or need help with deductions related to your home, contact our professionals at The Innovative CPA Group at 203-489-0612. Or contact us online.