Mortgage Interest Tax Deductible in 2018?
The short answer is Yes. All homeowners, and most home buyers will still be able to write off mortgage interest. But you might not have to.
The Tax Cuts and Jobs Act bill that was signed into law on December 22nd, 2017. Nothing changes for home owners, you are still able to write off your mortgage interest.
This article will help you understand how the Tax Cuts and Jobs Act will affect housing related tax deductions when buying a home in 2018.
Mortgage Interest Talking Points
There is no way to speak directly to each of you that are reading this article to address every and all possible tax saving scenarios. Everyone’s situation is unique, and your tax savings may vary.
For the sake of simplifying everything, we are only talking about the owner occupied home mortgage interest deduction.
What we know
- Under the current tax system, less than 30% of home owners take advantage of the mortgage interest deduction.
- The standard deduction is being doubled for all tax payers.
- The tax deduction allowed for mortgage interest on an owner occupied home mortgage was lowered from $1,000,000 to $750,000 for home purchases.
- There are a couple of controversial aspects of the new tax plan that may not reveal their true impact until after 2018 taxes are filed.
- For those that own or are buying in high Cost Counties in high tax States may be in for a cap on what they can write off on property taxes.
- Those buying in a price rage over a million are going to see a cap on the tax deductions for State property taxes.
- If you work in a W2 job now, and your payroll is managed by a major payroll service, chances are, you’ll start taking home more money as soon as February as your deductions are adjusted to reflect your higher take-home.
- Mortgage credit certificates were saved in the final law.
What we don’t know
- At the end of the day, you don’t know exactly what the final impact will be until you finish your 2018 tax returns.
- Individual mileage will no doubt vary.
What I think
- This may remove the need to itemize for many tax payers.
- I don’t think this is going to be on the radar of most home buyers. With a mortgage of $750,000, you’re in Jumbo territory.
- Jumbo loans will require a 20% down payment in most cases, so that puts you in the $900,000 purchase price range.
- Some Portfolio loans may require less down payment with a higher rates and fees.
- I think most home buyers get the biggest bang for their buck from the doubling of the standard deduction.
- The mortgage credit certificate was also on the chopping block in earlier version, but saved in the final bill. This is a huge tax credit for eligible first time home buyers.
The Biggest Challenge for Buyers in 2018
The bigger story here is whether or not the economy is going to continue to soar along on what appears to be a trajectory that closely mimics growth and prosperity.
If the economy continues to grow at the pace it’s been growing for the past couple of quarters, expect interest rates to continue to rise.
As interest rates continue to rise, there is likely to rush of buyers into the market. Fence sitters will (and should) jump into the market because of increased rates are there.
As rates increase, and more buyers come into the market, the increased competition will drive home prices higher. This is great for home owners, not so great for home buyers.
The truth is going to be in the results, and nothing else. Might there be winners and losers? I don’t know, probably. Life usually works that way.
If you’re educating yourself on this topic, you’re already a winner. You should talk to a tax professional about any tax related topics that you are considering.
There are many changes to the tax code, and I am not a licensed tax professional. Consult an expert!
If you have mortgage related questions, start a conversation below.