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11 Things to Know About Mortgage Interest Deductions for 2018

The new tax plan has arrived. Find out what the changes mean for filers and what it will impact come tax season for homeowners.

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So, Now What?Watchara Ritjan/Shutterstock

So, Now What?

With the passing of the Tax Cut and Jobs Act, a lot is about to change financially for citizens in the United States. One of the ways this change will affect citizens greatly is how it will reflect financially for homeowners. Although this tax cut is for 2018 (meaning citizens won’t see changes until February of 2019), there will still be a dramatic change for U.S. homeownership. Here’s what you need to know, thanks to the National Association of Realtors (NAR).

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If You’re Looking for a New HomeAlexander Raths/Shutterstock

If You’re Looking for a New Home

You actually may have some difficulty finding a home if you plan on buying one in 2018. All buyers will no longer have personal exemptions, but standard deductions do increase. Although there is a chance to receive a higher tax cut than before, it is actually possible for people to experience even more of a tax cut when they rent. This means the housing market could become less attractive to first-time homeowners, which could result in a dry market.

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If Your House is ExpensiveArtazum/shutterstock

If Your House is Expensive

This could affect you negatively in a few ways, but you may see a few benefits in other areas. The new deductible property amount is at $10,000, and there could also be scaling back of the mortgage interest deduction. Previously homeowners could deduct interest up to $1 million, but that has been lowered to $750,000.

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If Your House Sits at an Average PriceArtazum/Shutterstock

If Your House Sits at an Average Price

Good news, you can probably save money. Thanks to the new deduction standards, moderately priced homeowners can save money (if they have no other deductible expenses). This act will actually double the standard deduction, reducing the value of the mortgage interest and property tax deductions as tax incentives for homeownership.

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If you Plan on Buying a Second HomeJames R. Martin/shutterstock

If you Plan on Buying a Second Home

Thanks to the new deduction limits, buying a second home may be difficult. After the $750,000 mortgage cap, the interest on your mortgage will no longer be deductible. However, this does not mean your entire mortgage is no longer deductible—just the difference. For example, if you are above your mortgage cap by $100,000, that amount will not be deductible.

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If You Plan on Renting Instead of BuyingESB Professional/Shutterstock

If You Plan on Renting Instead of Buying

Smart move! Why? The breakeven points (where buying is less costly compared to renting) have increased drastically. Especially for those who are upper-middle class or wealthy taxpayers. This means it may not be financially smart to get a home right now after all!

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If You Plan on Selling Your HomeRomanR/Shutterstock

If You Plan on Selling Your Home

The NAR predicts that home prices will slow, but probably will not drop, in 2018. Also, a taxpayer who sells a home may exclude up to $250,000 of gain from taxation ($500,000 if married or filing jointly) if that place of residence was used for at least two of the past five years. However, keep in mind that with this new act, you can no longer deduct moving expenses. Only active duty members of the armed forces can deduct.

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Deduction Done for Most

Homeowners can refinance mortgage debts that existed on Dec. 14, 2017, up $1 million and deduct the interest, as long as the new loan doesn’t exceed the original mortgage. But after that it appears the deduction is no longer available.

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Home Equity Debt Interest

The new bill repealed the deduction on home equity debt interest through Dec. 31, 2025. Interest, however, is still deductible if the home equity loan is used to substantially improve the home. There isn’t a clear definition of what constitutes a substantial improvement.

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Much Ado About Nothing?

Zillow conducted research on the new tax bill and found that trying to use the mortgage interest deduction only benefits around 14 percent of homes. It used to be around 44 percent but since the standard deduction increased, it appears fewer taxpayers will try to itemize in 2018.

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Capital Gains

A married couple can still exclude up to $500,000 profit from capital gains when they sell their home and a single person can exclude $250,000.