As the cliché goes, there are two things we have to put up with in life: death and taxes.

Well, now there’s a third thing we need to do: comply with the new tax code overhaul that was retroactive to, in some cases September 27, 2017, and in other cases January 1, 2018.

You see it doesn’t matter what you might think of the 45th president of the United States and the Republican Congress. We must all live with the new tax code.

So I will repeat this: now there are three things you must withstand in life: death, taxes, and tax code changes.

Have I said this enough times?

The cliché notwithstanding, let’s delve into what these tax code changes will mean to you.

We’ve all enjoyed deductions for mortgage interest for years. I know that I have. Now that deduction is limited to the underlying indebtedness on a property of up to $750,000 for properties acquired after December 15, 2017, and subsequent years.

Fortunately, there are transition rules which grandfather acquisition indebtedness, which was incurred before December 15, 2017, and for taxpayers who had a binding written contract before December 15, 2017, and who are able to complete their purchase of the residence between April 1, 2018.

In some cases, you will be able to write off your refinance interest. This will occur in those cases where taxpayers who refinance existing mortgages, which were grandfathered with the higher limit of 1 million acquisition indebtedness.

There is a sad note about your deductions. If you own rental property, the new acquisition indebtedness limit for interest deductibility won’t apply to your rentals.

Do you own a second house? Then there may be some good news for you. The $750,000 acquisition indebtedness can be used for the purchase of a second residence. But the $750,000 figure is an aggregate limit for both residences for which you owe money.

Did you enjoy any benefit from the Home Equity Interest Deduction? I am sorry to report that that deduction is suspended until the tax year 2025.

I’ve been using the term “acquisition indebtedness” without explaining it fully. Let me do that now. Acquisition indebtedness just refers to any debt your incurred to improve property that you own. It doesn’t apply to a loan on the property. For example, did you secure a loan to make any improvements to your home? Then the interest paid on that loan would be considered acquisition indebtedness.

How Itemized Deductions will Change:

There are now some changes to itemized deductions. Let me explain some of them here:

  • The standard deduction for 2018 is increased to $12,000 for singles, $24,000 for married couples filing joint returns, and $18,000 for heads of households.

  • The State and local tax deduction will be limited to $10,000 annually effective 2018.

  • Unfortunately, the above-listed changes will result in fewer people itemizing deductions to only 14% of people who own their homes. This fact is according to Zillow. In other words, homeowners (you) won’t get any tax benefit from mortgage interest, state and local tax deductions, or charitable deductions until you exceed the standard deduction.

  • There’s more news (some might call it bad news): all miscellaneous itemized deductions, such as investment advisor fees, for example, are no longer deductible.

The tax code changes are massive, and therefore I will be tackling them, little by little, in a series of blog posts. This is just the first one. Please look for my next blog post, which I promise to write within one week.

* This blog post is an indication of our understanding of the new tax code. We urge you to speak with your CPA to determine how the newly passed  tax code and regulations will impact your tax liability.

 

Thanks for reading!

Carissa Abazia

@CarissaMortgage