3 Costly Ways Homeowner Tax Breaks Will Change in 2018

3 Costly Ways Homeowner Tax Breaks Will Change in 2018 Photo by Andy Dean Photography / Shutterstock.com

Republican leaders have been boasting that tax reform “preserves the mortgage interest deduction, providing tax relief to current and aspiring homeowners,” as their put it. But the final legislation is more complex than that.

The federal income tax deduction for mortgage interest is not among the multiple tax breaks that will disappear in 2018 due to the Tax Cuts and Jobs Act. But this deduction will be scaled back, making it less valuable for many folks.

Additionally, the tax deduction for other types of home equity debt will disappear in 2018.

Here are three key changes:

  1. Less mortgage interest will be deductible. Taxpayers with mortgages taken out on or after Dec. 15, 2017, can deduct interest on mortgage debt that totals up to $750,000 (or $375,000 for married couples filing separate returns). Under prior tax law, these limits were higher: $1 million and $500,000, respectively. Taxpayers with mortgages taken out before Dec. 15, 2017, can continue to deduct interest on the higher amounts of mortgage debt, however.
  2. Interest on home equity loans is no longer deductible. Before the changes in the tax code, taxpayers could deduct interest on home equity debt that totaled up to $100,000 (or $50,000 for couples filing separately). Such debt includes home equity loans.
  3. Interest on home equity lines of credit (HELOCs) is no longer deductible. Under the prior tax code, taxpayers could deduct interest on home equity debt that totaled up to $100,000 (or $50,000 for couples filing separately). Such debt includes HELOCs.

All three of these changes expire Jan. 1, 2026.

In other words, your 2017 tax return will be your last chance for a decade to claim the greater mortgage interest deduction or the deductions for other home equity debt interest, assuming you were eligible for them previously.

So, if you are considering buying a home, account for the lower threshold for mortgage interest when weighing whether to buy or rent.

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