Will the New Tax Law Save You Money... or Cost You?
/It's official: The new tax law, which is now in effect, may affect potential and current home-buyers… in more ways than one. American homeowners may be facing a lower threshold on the mortgage interest deduction, a cap on the state and local deduction, and a higher standard deduction. So will the new tax law save us money… or cost us money? The answer depends on a complex array of factors that touch on just about every aspect of our financial lives. And Senior Moody Analytics economist Adam Kamins claims, “States in the Northeast and along the coasts are hit pretty hard, and states in the South and Mountain West come out ahead”.
Good news, Middle Tennessee that means we may be in the clear.
The mortgage interest tax deduction is a great way to make homeownership more affordable. It cuts federal income tax that qualifying homeowners pay by reducing their taxable income by the amount they pay towards mortgage interest. And luckily, via the new tax law, homeowners with existing mortgages may continue to deduct interest on a total of $1 million of debt for their first and second home. But for new buyers, the $1 million limit fell to $750,000 for a first and second home.
For example, if I already have a $750,000 mortgage on a first home and a $200,000 mortgage on a second home, then I can continue to deduct the interest on both on Schedule A. But what if I already have one home with a $750,000 mortgage and want to use a new $200,000 mortgage to buy a second home this year? Well, in this case, I couldn’t deduct the interest on the second loan.
"States in the Northeast and along the coasts are hit pretty hard, and states in the South and Mountain West come out ahead."
While the new tax law doesn’t affect just homeowners or individuals wishing to finance a home, a few other caveats, such as a moving expense deduction overhaul, exist. For example, under the former tax law, you could deduct some moving expenses when you moved for a new job. You had to meet complex criteria involving distance and timing of the move. But as of the beginning of 2018, only active-duty members of the armed forces will be allowed to deduct moving expenses.
So if you came out ahead on the tax bill with respect to housing or any other aspect of the bill, congratulations! If not, don't worry. Since 2018 is an election year, I wouldn't be at all surprised to see beneficial tweaks in the tax law via new legislation.
Remember that while taxes may be permanent, the size and distribution is always changing. And as far as the potential effects such changes may have on the housing market, I have no fear. Owning a home is part of the American dream, and maybe even the pursuit of happiness. According to Logan Mohtashami, a spokesperson for AMC Lending Group, “In general, people buy homes because they want to raise their family, they want to own something, forced savings,” he continues, “and not have to deal with a landlord.”