The majority of my Richardson, TX tax firm clients itemized their deductions prior to the Tax Reform and Jobs Act of 2017 (TCJA), which primarily took effect in 2018. However, since the TCJA, that number has dropped substantially.
As a quick overview, taxpayers have the option between claiming the standard deduction or itemizing their deductions. They typically use the method that gives them the largest deduction. In general, while the TCJA had a positive impact for taxpayers in the form of lower tax rates, one area where the changes sometimes negatively impacted taxpayers were for those that itemized their deductions. While the Standard Deduction nearly doubled (deductions for exemptions were removed), some itemized deductions were removed or reduced. For the most part, these offset each other. However, the larger standard deduction, also reduced the number of taxpayers that qualified for itemizing, and the amount for those that did.
Today we’ll focus on the deductions available to homeowners, mainly the Mortgage Interest Deduction and the SALT (State and Local Tax) deduction, which includes real estate taxes.
For most homeowners, their mortgage interest deduction on their primarily home will not be impacted. A full interest deduction is permitted for up to $750,000 of indebtedness on primary/secondary home mortgage. For loans originated prior to 12/15/17, mortgage indebtedness can be as much as $1 million can qualify for full interest deduction. Home equity (includes second mortgages) mortgage interest can still be deducted so long as funds from the equity loan was used to buy, build, or substantially improve the home that secures the loan. The total of all loans must not exceed $750,000 ($1 million for loans originated prior to 12/15/17)
For real estate taxes, the SALT (State and Local Tax) deduction, impacts primarily those in states with income taxes or homeowner’s who have large real estate tax bills. The SALT deduction has been capped at $10,000. This is a combined total of your property taxes + state/local taxes + DMV fees. In the past, the deduction was not limited. Those in states with high income tax rates are most likely to be impacted but those in states with no income taxes, such as my home state of Texas, may still have their Real Estate Tax deduction impacted depending on the value of their home.
Do you Need Help?
If you would like help from a firm that specializes in working with realtors and real estate investors, as well as helping those who have IRS problems solve their problems, please give us a call at (972) 821-1991.
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