Rob Yeend

Insights on Homeownership After the TCJA

by | Feb 20, 2019

2 minute read

In recent years, people have flocked towards homeownership instead of continuing to rent. With home values and rents on the rise, homeownership has become more appealing! In the past, one of the many perks of homeownership has been the tax savings that homeowners typically receive. However, under the Tax Cuts and Jobs Act of 2017 (TCJA), homeowners may no longer qualify for the deductions that were once beneficial in homeownership.  Now that the biggest tax reform in 30 years is in effect, there is definitely some new information to consider regarding your tax situation.

This year, the standard deduction has doubled. With that in place, some homeowners will still see some tax savings. While there aren’t as many itemized deductions available, some of the usual tax deductions for homeowners are still in place. Deductions such as home mortgage interest, state and local property taxes, and amounts paid at closing are likely still deductible while filing in 2019. Consult the IRS Publication 5307 here for more specific information, but also work with one of our tax professionals to ensure that you are maximizing your tax savings as a homeowner.

  • Mortgage Insurance Deduction – If a homeowner is unable to 20% or more down on a home purchase, primary mortgage insurance (PMI) will be required to protect lenders. At the moment, some amounts paid until the end of 2017 remain deductible. Congress is still deciding whether this deduction will be permanently eliminated in the future.
  • Mortgage Interest Deduction – Under the TCJA, taxpayers can deduct mortgage interest paid on acquisition indebtedness up to $750,000. This deduction can still apply to a second property, so long as the indebtedness does not go above the $750,000. Home equity indebtedness remains deductible only if the proceeds are used to buy, build, or improve the taxpayer’s home that secures the loan.  
  • State and Local Taxes – For the 2018 tax year, taxpayers are now limited to a $10,000 itemized deduction for combined state and local taxes. Homeowners in states with high property and income taxes will be affected the most with this new limitation.
  • Amounts Paid at Closing – Typical fees that homeowners pay when acquiring new property (origination fees, loan discounts, prepaid interest, etc.), are not usually deductible in the year that they are paid, but rather over the life of the loan.

While there are several new tax considerations for homeowners to think about, taxes are highly unlikely to be the deciding factor when it comes to a home sale or purchase. People may be less likely to consider homeownership, which may result in lower home values over a longer period of time. Nolo.com shares that the tax benefits of homeownership will be less now than they have been in the past, which may place many homeowners in the same boat as renters. There’s no perfect solution for every homeowner, but with the right tax and financial planning from B&Y CPAs, there are still opportunities for homeowners to increase their cash flow and tax savings.  

About the Author

Rob is a CPA and has been in public accounting since 1993 after graduating from Ball State University with a Bachelor of Science degree in accounting. Rob became co-owner of the firm in 2003. Rob provides services to many types of industries; including, manufacturing, trucking, construction, service, and retail.

Subscribe to Our Newsletter

  • This field is for validation purposes and should be left unchanged.

Related Articles

Tax Credits and Tax Deductions: What’s the Difference?

If you want to end up owing less money to the IRS after filing your taxes (and who doesn’t?), claiming tax credits and deductions can greatly help to shrink that number. However, because they work in different ways, understanding the difference between a tax credit...

read more
End-of-the-Year Tax Planning Tips for Your Small Business

We are nearly two years into the sweeping Tax Cuts and Jobs Act of 2017, the largest major tax reform in over 30 years, and one thing remains clear: strategic tax planning is key to lowering a business’s total tax liability. Below are some tips to think about...

read more

Archives

Have a question or want to get started?