Key Highlights

  • 2017 Tax Cuts and Jobs Act redefined tax benefits for homeownership.
  • State and local taxes (SALT), including property taxes, were capped at $10,000.
  • Mortgage cap now $750,000 instead of $1M.

Very different tax benefits for homeownership went into effect in early 2018 when the Tax Cuts and Jobs Act was passed in December 2017.

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Take a look at this brief summary of current homeownership deductions:

  • Interest on mortgage payment up to $750,000 if filing as married joint filers and $375,000 if filing as a single filer if the loan was signed after December 15, 2017.
  • Interest on mortgage payment up to $1M if filing as married joint filers and up to $500,000 if filing separately if the loan was signed prior to December 15, 2017.
  • Property taxes up to $10,000 including state and local taxes. This cap on combined state/local/property taxes has been a huge negative to homeowners living in states where such taxes are high.

How do these new homeownership tax benefits stack up?

  • The cap on SALT, including property taxes, at $10,000 has been a huge blow to homeowners living in states with high property taxes…the East and West Coasts.
  • The cap of $750,000 on mortgage interest has been a blow to homeowners who formerly were able to deduct $1M of mortgage interest payments.
  • There has been a doubling of standard deduction amounts.
    • $12,400 for single tax filers and married couples filing separately.
    • $18,650 for heads of households
    • $24,000 for married couples filing jointly
  • The translation? To capitalize on mortgage interest and property tax deductions, total itemized deductions need to surpass the above noted totals. Unless homeowners have other items to write off, itemizing one’s tax return makes no sense.

Does it still pay to be a homeowner?

Experts say that if the cost of homeownership is comparable to renting, it still makes sense to own despite being unable to reap tax benefits WHILE owning. The real benefit MAY be a lucrative tax break when the owner sells the home.

Upon selling the home, the homeowner may experience a capital gains exclusion. This translates into paying no taxes on the resale profit up to $500,000 if married and filing jointly or $250,000 if filing single provided the owner has lived in the house at least two years during the five-year period prior to the sale of the house.

Additionally, if the homeowner made improvements in the house, NOT repairs, the owner can reduce gains on the sale that otherwise the owner would be liable for. Let’s say the owners bought the house for $250,000 and sold it for
$800,000. That $550,000 would translate into a tax liability of $50,000 for married couples filing jointly UNLESS the owners made $50,000 of home improvements. Then the owners could add that $50,000 to the cost basis of the home, thus wiping clean any tax liability.

The bottom line? Experts say that if people want to build equity in a property, put down roots and enjoy living under their own rules rather than landlord rules, by all means be a homeowner despite being unable to shield some income from the IRS.


Thanks to Motley Fool’s Maurie Blackman for source data.

Also read: Mortgage Lending’s Biggest Quarter in 14 Years!, Are Low Rates & Rising Incomes Transforming Housing Affordability? Nearly 50% of Homes Sold to iBuyers Living in 4 Markets

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