You may want to think again if you intend to purchase a new house in the coming year. The main reason for this is that, in 2018, the rules for tax deductions for any American citizen who want to take a second mortgage will change when the new tax reform bill takes effect in January 2018. The Republican-sponsored GOP tax bill lowers the interest deductions on Mortgages from $1 million to $750,000 where the caps apply to all kinds of houses.
However, the limit for homes that were bought before December 15 will remain at $1 million. Prospective homeowners who already have a $750,000 mortgage and have plans on purchasing another home in the coming year will not be able to have tax interest deductions on loans. This is according to a report given by the director of advanced planning at Baird Private Wealth Management, Tim Steffen. If you have subscribed to a mortgage of a smaller amount, from $150,000 to $600,000 of added debt, you will able to fully deduct your tax interests while filing for tax returns with the IRS.
The GOP tax reform bill which was muscled through Congress in the last month by the conservatives also brings along the removal of tax interest deductions on existing and new home equity loans. Steffen said that there was nothing that was grandfathered on that and that those interest deductions will just disappear. The new tax bill also caps the tax deductions for local and state income taxes at $10,000. Most American citizens who are planning on buying a new home have already exceeded the prescribed limit for local and state taxes. Under the existing tax legislation, around 44% of homes have enough value for their owners to benefit from the mortgage interest deduction by having their expenses itemized. This was according to a report released by the website Zillow which mainly deals with real estate.
However, under the new law, the number of eligible homes could dive all the way down to 14.4% according to Zillow projects. This is because the standard deduction for homeowners has nearly been increased by 100% of the current amounts. One of the Principals at accounting firm UHY Advisors, NY Inc., Eric Hananel, said that prospective home buyers should also be cognizant of the fact that the new tax law may decrease the value of some real estate properties bringing down their price. The tax bill is the most comprehensive tax reform that the United States has experienced in three decades.