Since January of 2018, there have been some key changes to tax law that will affect us in the coming years. We talked to Michael DeRosa, executive mortgage banker with William Raveis Mortgage to answer some of the questions you may have.
WR: Did my mortgage interest deduction disappear?
MD: First off, the mortgage interest deduction did not disappear. The new law caps the limit on deductible mortgage debt at $750,000 for loans taken out after December 14th 2017. Loans made before that date can continue to deduct the mortgage interest up to $1 million. After looking into this further, I found that homeowners can refinance mortgage debts that existed before December 14th, 2017 up to $1 million and continue to deduct the interest as long as the new loan does not exceed the amount refinanced.
WR: What changes can I expect?
MD: A lesser known change – the deductibility of interest on a home equity line of credit (HELOC) has been removed. Congress felt that too many Americans were using their HELOC as a personal credit card instead of for home improvement and decided to remove this loophole. If you have a HELOC you may want to consider refinancing the balance into your first mortgage so that you can retain the ability to write the interest off on your taxes – assuming that it does not exceed $750,000. You can still claim the HELOC interest on your 2017 tax filing.
WR: Is the $10,000 limit for state and property tax deductions really the same for a single filer as for joint filers?
MD: Yes. Under the new legislation, regardless of whether you’re single or married, you’re not allowed to deduct more than $10,000 of property taxes and state and local income or sales taxes. You’ve probably heard the term SALT being thrown around and are wondering what it is. SALT stands for State And Local Taxes. In previous years, you could deduct the entirety of your state and local taxes (including property tax and school tax) on your federal tax return. This deduction will now be capped at $10,000. The biggest impact will be felt in areas of the Northeast and the West Coast.
WR: How will this affect the real estate market?
MD: We will not know the full impact of the tax reform bill and how it will affect our local economies until taxes are filed. Everyone will be affected differently. In my opinion, low inventory and strong buyer demand will keep our real estate market stable in the low to mid-tier. The high-end market could take the biggest hit and see a possible decline in prices to counteract the lower interest and SALT deductions.
There are no blanket statements that fit all scenarios. Please be sure to speak directly with your accountant or tax professional if you have any questions on how the new tax laws will affect you.