Changes to U.S. Real Estate Tax Deductions for 2018

Written by Posted On Monday, 17 September 2018 01:57

As a homeowner, or soon to be homeowner, you can get some pretty sweet tax deductions from things related to your home. Some tend to change from year to year, like those for energy-efficient upgrades, others are pretty stable, like being able to deduct mortgage interest.

The tax bill that will be in force in the up and coming tax season, the Tax Cuts and Jobs Act (TCJA), has made some fairly dramatic changes to how many homeowners will file their taxes this year. Take a look at this preview of home-related points to ponder for your 2018 tax filings.

TCJA Items to Watch in 2018

When the TCJA was pushed through Congress in December 2017, many people were up in arms. The overhaul, they said, was going to be problematic for a number of reasons, which, we’ll see how that pans out. It does seem that when it comes to real estate, the TCJA is going to be a pretty prickly thorn in a lot of property owners’ sides.

These are the top items you’ll want to pay close attention to this year:

Item #1: SALT

The state and local tax deduction (SALT) is set to be a problem for homeowners in high-tax areas. In the past, you could claim an unlimited amount of already-paid personal state and local income taxes, as well as your property taxes, as a deduction to offset your tax bill. From now until 2025, you’ll only be able to use your Schedule A to itemize $5,000 worth of these taxes if you’re single or married filing separately and $10,000 for married filing jointly.

This looks like a bear of an issue for many people in those high tax areas on both coasts, but for some, the increase of the standard deduction to $12,000 for singles or $24,000 for couples may balance the equation.

Item #2: Your Mortgage Interest Deduction

If your home was purchased after December 14, 2017, you will be subject to the new limits on mortgage interest deductions. Instead of being able to deduct the interest on up to a $1,000,000 mortgage, you’ll be capped at the interest on only $750,000. Now, if you’re in the less spendy parts of the US, you probably don’t need to worry about this at all, but again, for those of you on the coasts where real estate prices are often hugely inflated by comparison, it may make a weighty difference.

According to a Zillow report published shortly after the TCJA passed, “Under the current setup [Pre-TCJA], roughly 44 percent of U.S. homes are worth enough for it to make sense for a homeowner to itemize their deductions and take advantage of the mortgage interest deduction.Under the new bill (as reported), that proportion of homes drops to 14.4 percent. Interest on second/vacation homes will remain deductible, but will also be capped at $750,000.”

Item #2B: Home Equity Loan Interest Deductions

This one is being called out specifically because of the number of people who are likely to be affected by it. If you purchased a home at any time and took out a home equity loan, you may lose your deduction this year. The TCJA says that unless your home equity loan was used for home improvements, it’s no longer allowed.

There is no grandfathering for this clause, you are paying for decisions you made in the past, not knowing this bill would become a law.

How the IRS will be able to verify how you spent your funds, especially if the loan is 10 or 15 years old, is anyone’s guess.

Item #3: Gains From Home Sales Still Protected

Despite all the new rules that are taking deductions away, the home sale gain exclusion remains. You’ll still be able to exclude up to $250,000 ($500k for married filing jointly) of gain from a home you’ve owned and used as a primary residence for at least two of the last five years. So, you’ve got that going for you.

Taxes and Real Estate: A Tricky Mix

It’s a good thing you have a whole community at HomeKeepr watching out for you when it comes to changes to the tax laws this year. When you’re ready to start discussing your own tax situation, just use the search function to find accountants and tax preparers that can answer your burning questions. Since all the HomeKeepr pros come heavily recommended, you can feel confident that you’re ready for the big tax law change.

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Pete Caruso

Pete has been a licensed real estate agent since 1998 and has represented buyers and sellers throughout San Diego County.  Past clients include professional athletes, business owners, first time home buyers and sellers. 

A Police Officer for over 31 years, Pete began and finished his distinguished career in Downtown San Diego.   Witnessing the transformation of Downtown from burned out warehouses and vacant lots to the successful urban revitalization of today, Pete brings unmatched area knowledge to the San Diego Urban and Suburban market!

Pete and his wife, Anna, live and own in the East Village at The Legend but have lived all over San Diego for the past 35 years.  Pete offers new residents professional guidance from a local’s perspective. 


Negotiation skills, problem solving abilities, attention to detail and an easy-going nature, Pete is the perfect fit for the discerning client who demands perfection.

  • Possessing the knowledge and experience of 17 years as a Police Dog Handler/Trainer, Pete gives back to the community by offering free dog training classes to his fellow Downtowners.
  • Pete has taught animal behavior seminars for the trainers at Sea World, The San Diego Zoo and Canine Companions for Independence.Pete has supervised the training for well over 100 Police Dog teams during his career, along with dog handlers from the US Navy Seals. 

 

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