Five Tax Rule Changes Homeowners Should Discuss with Their Tax Advisors

Taxes can be complicated. When it comes to the details, taxes are always a subject best left for experts – especially when new laws change the rules that apply to federal income taxes.

In late December 2017, a new law called The Tax Cuts and Jobs Act was enacted. This legislation changes many rules, including some that may directly impact homeowners and homebuyers when they file their 2018 federal income taxes.

Even though it will be early 2019 before it’s time to file 2018 federal income taxes, it’s important to be aware of new rules. Every individual and family has unique financial circumstances, and it’s imperative that you consult your tax advisor about how the new rules impact you.

Here are 5 rule changes that homeowners and homebuyers will want to discuss with their tax advisors1,2:

1. For home loans taken out after December 14, 2017, the interest paid on a mortgage is deductible on loan amounts up to $750,000 (or $375,000 in the case of married filing separately). Before the rule change the loan amount limit was $1 million.

2. Home loans of up to $1 million taken out before December 14, 2017 are not subject to the new $750,000 cap.  
Mortgage interest paid remains deductible on second homes, but the $750,000 cap and the $1 million limit mentioned above applies to second homes, too.

3. Deductions for interest paid on home equity loans (or second mortgages) are only allowed if the money is used to substantially improve the residence.
For people who itemize deductions there is a cap for the total state and local property taxes and income or sales taxes. That cap is $10,000. Before the rule changes, every dollar spent on these types of state and local taxes were typically deductible. 
How do the rule changes impact homeownership?

5. When changes to taxes are made there is always a lot of discussion about the benefits and drawbacks. Some people think that the new rules reduce the incentive to become a homeowner. Others believe that the new rules may have minimum impact.

Here are a few ideas to consider regarding homeownership and the impact of new tax rules:

It’s estimated that only 6 percent of mortgages in the U.S. are more than $750,000.2 So, the cap on the deductibility of mortgage interest paid may not impact homeowners or home buyers unless they live in areas where there are higher priced homes.

For homeowners in high priced areas – such as California, Hawaii, Massachusetts, New York and Washington, D.C. – some experts predict that the new tax rules will slow the growth in home values. This would potentially affect home sellers in these areas, as well as the number of homes sold.2

On the other hand, locations where home prices are lower may gain in popularity with home buyers, which could increase the value of the homes in such areas.

In addition, fewer people may decide that it’s beneficial to itemize deductions in the future. The new tax rules doubled the standard deduction for single taxpayers and married couples filing jointly to $12,000. For married couples filing jointly, the standard deduction has been increased to $24,000. These much larger standard deductions may make it less advantageous to itemize any deductions, including the interest paid on a mortgage.2

Finally, the new rules reduced tax rates and changed the tax brackets.1 Many people have already seen that their paychecks are a little larger in 2018, because less federal income tax is being withheld. Some experts believe that larger paychecks can inspire potential homebuyers to save for a down payment or decide that the time is right to buy a home this year.


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1. The Tax Cuts and Jobs Act – What it Means for Homeowners and Real Estate Professionals. National Association of Realtors. 12 Dec 2017. Web. 02 Feb 2018.

2. Tax Reform: Here’s What Could Impact Homeowners Most. Liz Dominguez. 03 Jan 2018. Web. 02 Feb 2018.


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