The Tax Cuts and Jobs Act (TCJA) modified several of the tax breaks offered to homeowners. Some taxpayers may now get less tax benefits from owning their homes, but that doesn’t necessarily mean they’ll end up paying more in income taxes.
If you’re considering buying a home, make sure you understand how the following tax breaks could apply to your situation.
Mortgage Interest Deduction
The mortgage interest deduction remains intact after the passage of the TCJA, but it has lost its effectiveness for some taxpayers. That’s because the standard deduction was increased so much that some taxpayers who have a mortgage will still be better off not itemizing their deductions.
This is particularly true for married taxpayers. The 2018 standard deduction was $24,000 for married taxpayers who filed jointly. If your mortgage interest and all other itemized deductions were less than this amount, you would end up taking the standard deduction anyway.
The TCJA also capped this deduction to apply to mortgages of $750,000 which reduces the deduction for taxpayers with very expensive homes.
Property Tax Deduction
The TCJA also limited the state and local tax deduction to $10,000 per year. If your property taxes are high, this change will reduce your total itemized deductions.
This change is more likely to hurt taxpayers who live in high tax states, such as New York and California.
Mortgage Credit Certificates
If you won’t benefit much from the mortgage interest deduction, you may want to see if your state, county, or city offers a mortgage credit certificate (MCC). These programs usually have several conditions you’ll need to meet, such as:
- You need to be a first-time homebuyer or buy a home in a designated target area.
- There are income limits and home purchase price limits.
- You need to buy a home in the MCC’s administrator’s geographic area.
- You must occupy the home as your primary residence.
If you qualify, these programs can offer a tax credit based on a specified percentage of your mortgage interest paid, such as 20%.
Exclusion for Gain on Sale of Home
If you sell your home for a gain, you may be able to exclude up to $250,000 ($500,000 if married filing jointly) of that gain from your taxable income. You must have owned and used the home as your main residence for at least two of the previous years to qualify, and you can’t have used this exclusion in the prior two years.
If your taxes have increased due to the TCJA and you need help paying off your IRS tax debt, consult a tax resolution attorney to discuss your options.
The Gartzman Law Firm can evaluate your case to determine your best tax resolution options. Use our contact form to request a consultation with an Atlanta tax resolution attorney.