Homeownership is a fundamental tax break for many Americans. When you own a home, you are eligible for several home-related tax breaks when you file your 2017 return. However, beginning in 2018, under the Tax Cuts and Jobs Act, the home-related tax breaks will be different, and possibly lower for most Americans.
2017 vs. 2018
Let’s look at the difference between 2017 vs. 2018 for home-related tax breaks:
Property tax deductions.
For the tax year 2017, unless your income triggers the alternative minimum tax (AMT), real property taxes are fully deductible most of the time. Now for the tax year 2018, you will be limited to $10,000 of deductions for all local and state taxes (total), including both property taxes and either sales or income taxes.
Mortgage interest deductions.
For 2017, you could typically deduct interest on $1 million of mortgage debt (incurred to build, purchase, or improve your principal residence and, or a second residence). However, for 2018, the debt limit changes to $750,000 if the debt was incurred after December 14, 2017.
Home equity debt interest deductions.
For 2017, there may be deductible for interest on home equity debt used for any purpose (debt limit of $100,000). (The interest isn’t deductible for AMT purposes if home equity debt isn’t used for home improvements). For 2018, the TCJA suspends the home equity interest deduction. Nevertheless, the IRS has explained that such interest usually will still be deductible if used for home improvements.
Deductions for Mortgage insurance premium.
Expired December 31, 2017. However, Congress might extend it.
Home office deduction.
For 2017, you may be able to deduct associated expenses or use a simplified process for claiming the deduction if your home office use meets specific tests. Employees can claim this as a miscellaneous itemized deduction when the itemize exceed 2% of adjusted gross income, which means there will be tax savings only to the extent that the home office deduction plus other miscellaneous itemized deductions. If you are self-employed, you can deduct home office expenses from self-employment income. For 2018, miscellaneous itemized deductions on Schedule A, which are subject to the 2% of adjusted gross income floor, disallowed, leaving the home office deduction useless to anyone except the self-employed who file a profit and loss on Schedule C.
Home sale gain exclusion.
You can exclude up to $250,000 ($500,000 for married couples filing jointly) of gain if you meet certain tests when you sell your primary residence. Changes to this break had been proposed. However, the changes weren’t included in the final TCJA that became law.
Debt forgiveness exclusion.
This break for homeowners who received debt forgiveness in a foreclosure, mortgage or short sale workout for a principal residence expired December 31, 2017. However, this one may be extended by Congress.
Other rules and limits apply to these breaks. To learn more, contact us. We can help you determine which home-related breaks you’re qualified to claim on your 2017 return and how your 2018 tax circumstances may be affected by the TCJA.
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Ben R Shull CPA LLC provides clients with tax, transaction, and advisory services. The insights and quality services we deliver help lead our clients through the next generation of changes, and accelerate growth while reducing risk. CPA Katy, TX.