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How The New Tax Law Will Impact Homeowners

The new Tax Cuts and Jobs Act affects homeowners in several ways, depending on several factors, including location, your income and the value of your home. Some people will see the tax benefits of homeownership and real estate investment while others will lose those benefits. Increasing interest rates and lower home values also depend on location and the value of the home. Most of the impact won’t be felt until 2018, though some taxpayers will see changes when they file their 2017 taxes if they bought a home after Dec. 15, 2017.

Mortgage Interest Deduction

The new law allows mortgage interest deduction for homes up to $750,000. The old amount was $1 million. If you purchased a home after Dec. 15, 2017 and the mortgage is higher than $750,000, you will only be able to deduct $750,000. You will still be able to deduct the interest on a second home, but that is also capped at $750,000. Thus, those who own homes with mortgages higher than the cap will end up paying more taxes on home ownership.

If your mortgage was filed on Dec. 14, 2017, or earlier, your mortgage is grandfathered in and you will still be able to deduct up to the old cap of $1 million, even if you refinance to get get a better rate after Dec. 15, 2017. Additionally, the deduction for home equity debt has been eradicated. If legislation is not enacted in 2026 to keep this in place, the caps will revert back to the old caps and will add home equity back into the allowable deductions.

Standard Deductions Increase and How It Will Affect Housing

The standard deduction doubled under the Tax Cuts and Jobs Act. Single taxpayers get a standard $12,000 deduction and those who file jointly get $24,000. This means that it’s more beneficial for taxpayers to take the standard deduction instead of itemizing. Thus, the deduction for home ownership no longer applies since that deduction for most is lower than the standard deduction. Additionally, deductions on state and local property taxes are limited to $10,000.

Because the standard deduction is higher and saves taxpayers more than if some itemized, this reduces the tax benefits of owning a home unless deductions related to the home are higher than the standard deduction. Previously, 44 percent of the homes were worth enough so that owners had to itemize. Under the new law, that number has changed to 14 percent.

This means that while you are technically not claiming your home to get the deduction, you are still getting it – it’s just lumped into the standard deduction. Always check your deductions every year to ensure which method is better – itemizing or not.

Where Real Estate is Most Impacted

Because the value of your home and property taxes vary widely from county to county – and even from city to city – some areas may see decreases in the price of homes because of the changes. This will most likely affect only the more affluent neighborhoods where homes are over $750,000. However, homes in areas with high-ranked school districts may see some changes in price because more people may opt to continue renting since the tax incentive for buying a home may not be a factor.

Places like parts of New Jersey and downstate New York are most likely to be affected, whereas places in some of the less affluent states may even see an increase in home prices, especially if there is job growth in those areas. Other high tax areas including California, Connecticut and Maryland may also see a decline in home prices since the $10,000 property tax cap doesn’t begin to cover the tax bill for homes in those states.

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About The Author
Kim McBee

Kim McBee epitomizes integrity, energy, hard work and a creative service in every detail of your real estate transaction that makes buying or selling your home an incredible, memorable experience. She uses her 13 years of experience to help you achieve your goals with the least amount of stress possible. Whether a first time buyer or an experienced seller, Kim will bring her spirited energy and real estate knowledge to your next adventure. Kim is a licensed Real Estate Broker in both North and South Carolina and is an active member of the Charlotte Regional Realtors Association as well as the National and Local Home Builders Associations. Kim started her career in real estate in 2002 with Crescent Resources, a large residential, commercial and multi-family developer based in Charlotte, NC. She and partner Gus Testa had the opportunity to work in most of their residential communities in the Charlotte region during their ten (10) year tenure. In 2012, Kim and Gus, along with a local area developer, formed On Point Carolinas Realty, LLC. On Point Carolinas Realty, LLC is a full service real estate company, working with buyers and sellers in both new home construction and re-sale homes. From 2002 – 2012, Kim and Gus sold between $15 - $50 million in volume in the Lake Norman, Charlotte and northern most portions of South Carolina. Now with On Point Carolinas Realty, LLC, they continue to work every aspect of the real estate industry representing sellers, buyers, investors and banks in the residential market. Before entering the real estate industry, Kim took a five year leave of absence from work as a scheduling analyst/cost engineer in the nuclear power industry for Stone & Webster >Engineering and Bechtel Power Corporation to stay home and raise her son.

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