President Trump's new tax law may cost homeowners more money. Whether you'll pay more on your taxes varies on a wide variety of factors based on your financial life. The new tax law affects both homeowners and their mortgages. The law took effect on Jan. 1, 2018, and is sure to affect tax returns come April 2019.
It's important that you understand how the new tax law will affect you. There are changes on how you'll deduct your mortgage interest and property taxes. Here are five things you need to know about Trump's new tax law.
Mortgage Interest Deduction
The deduction on the mortgage interest rate is a way to make homeownership a reality. It cuts the federal income tax that qualifying homeowners pay to reduce their taxable income. It's based on the amount of mortgage they must pay.
There isn't any change for homes purchased before Dec. 15, 2017. For those who purchased homes after the date can deduct the interest rate up to $750,000. If you refinance a mortgage, the new tax bill will treat it as a new loan. The old limit of $1 million still applies when you refinance.
Property Tax Deduction
The new tax bill also decreases property taxes. Qualifying taxpayers can reduce their taxable income based on the total amount of property taxes they paid. Homeowners can deduct up to $10,000 on their property taxes along with other state and local income taxes as well as sales taxes.
Home Equity Deduction
In addition to the mortgage interest deduction, there's a deduction for interest paid on home equity debt. If you borrowed a home equity line of credit, then it's tax deductible. You can deduct interest up to $100,000 of your home equity debt. For married couples filing separately, they can deduct interest up to $50,000. It's not applicable to buy a vacation home or to pay off credit card debt.
Mortgage Interest Reduction on Second Homes
You can deduct interest on mortgage debt on both your primary home and second home. This new law keeps this part of the former law in place. However, it reduces the amount of eligible mortgage debt you can deduct up to $750,000.
Deduct Moving Expenses
Under the previous tax law, you can deduct some of your moving expenses. This is only required if you moved to another state or area to start a new job. You have to meet some of the strict and complicated requirements including the time and distance of your move. As of 2018, only active members of the military and armed forces can be allowed to deduct their moving expenses.
Fewer Taxpayers Can Itemize
This new tax law reduced the number of itemizers from 49 million to 10 million. The deduction for married couples filing jointly rose to $24,000. Whether you end up paying more or less in taxes depends on a wide variety of factors based on your homeownership deductions and exclusions. Every taxpayer is different as they may file jointly or individually.
You can still increase the value of your home by renovating and updating it every so often. It's ideal to update your home every six months to a year. These regular updates will improve the value of your home. You may not be hit with as high property taxes or mortgage interest rates as your neighbors will.
You also do a regular inspection to increase the value of your home. A qualified professional can look for the signs of mold in house and preventing these issues from spreading to the other parts of your home such as your HVAC or furnace. Not only will this important step increase your home's value, but it can improve the health and well-being of your children and pets. Updating your home and increasing its value can greatly reduce property taxes and mortgage interest rates.