Understanding the tax changes and implications for 2018 should be discussed with your accountant but here are a few highlights:
New limits on home mortgage interest deductions
Effective next year, the new law reduces the maximum amount of mortgage debt to acquire a first or second residence for which you can claim itemized interest expense deductions from $1 million (or $500,000 if you use married filing separate status) to $750,000 (or $375,000 if you use married filing separate status). However, this change doesn’t affect home acquisition mortgages taken out under binding contracts in effect before Dec. 16, 2017 as long as the home purchase closes before April 1, 2018.
Also, the old-law $1 million/$500,000 limits continue to apply to home acquisition mortgages that were taken out under the old-law rules and are then refinanced after this year (as long as the refinanced loan principal doesn’t exceed the old loan balance at the time of the refinancing). Starting next year, the new law also eliminates the old-law rule that allowed interest deductions on up to $100,000 of home-equity loan balances.
No change in home sale gain exclusion rules…HOORAY!
The new law preserves the valuable tax break that was originally established in 1997 that allows you to potentially exclude from federal income taxation capital gains from the sale of your home if you have lived in and owned your house at least two of the last five years, you can exclude up to $250,000 ($500,000 for married taxpayers). This exclusion is available to taxpayers for one sale every two years if you move that often. THIS IS GREAT NEWS THAT THIS TAX ADVANTAGE WAS KEPT IN PLACE!