There are many great reason to buy a home, including tax benefits. Experts warn though that with changes in the new Trump tax plan, the tax benefits should not be the biggest reason to get into a mortgage.
Under President Donald Trump’s tax reform, which is effective for taxes filed this year, the standard deduction is raised to $12,000 for individuals and $24,000 for married couples filing jointly. This standard deduction is the amount your are able to deduct from your taxable income. If you don’t take this deduction you are able to itemize your return. With this increased deduction in place it makes buying a home more attractive for people.
The new homebuyer tax deduction is anticipated to change how people file their taxes and understanding how it affects your benefits will be important. It is anticipated that nearly 90% of taxpayers who itemize in previous years will be better off utilizing the standard deduction.
The new tax codes are also expected to have an effect on the type of home that people are looking to purchase. In past years, tax payers were able to claim deductions for unlimited state and local income as well as sales and property tax when they itemized. Under the new guidelines these deductions will be limited to a total of $10,000 making homes with more modest property tax bills attractive. Some states are offering a workaround solution to help their local residents, so it is best to work with a tax expert.
One deduction that is seeing a reduction in the amount a tax payer who is itemizing can expect is the mortgage interest. In past years a couple filing jointly could deduct interest up to $1 million of qualified debt and $500,000 for an individual. These numbers have been reduced to $750,000 for a couple and $375,000 for an individual. This can include home debt in the form of a home equity loan or line of credit used to purchase or upgrade their home.
Each state may also offer its own deduction and workaround for home buyers. With a number of changes this year it may be as important as ever to work with a tax professional when preparing your taxes to gain every advantage you can.