December 11, 2017
Last weekend the Senate passed a sweeping tax overhaul bill. Orion’s brokers should know that homeowners who currently benefit from home-related tax breaks will become a much smaller pool.
The House and Senate bills nearly double the standard deduction. For single filers the Senate bill increases it to $12,000 from $6,350 currently; and it raises it for married couples filing jointly to $24,000 from $12,700. That would drastically reduce the number of people who opt to itemize their deductions, since the only reason to do so is if your individual deductions combined exceed the standard deduction amount.
There are two big tax breaks that many homeowners qualify for. Interest you paid on your mortgage, called the mortgage interest deduction which, according to the Tax Foundation, is the third-most popular itemized deduction. Mortgage industry professionals say it’s a much-needed incentive to encourage homeownership.
Currently itemizers may also deduct their property taxes as well as their state and local income or sales taxes. These tax breaks lower your taxable income and can decrease the amount of tax one owes. Keep in mind that to utilize these breaks, one must itemize their deductions.
The Senate bill kills state and local income tax deductions and limits property tax breaks – not good for many of Orion’s broker’s clients. The original Senate bill called for a full repeal of the SALT deduction. But it was amended to preserve an itemized deduction for property taxes but only up to $10,000, which is identical to the House measure. The Senate bill would still let one claim a deduction for the interest paid on mortgage debt up to $1 million. The House wants to cap the loan limit at $500,000 for new mortgages. Since the House and Senate bills sharply increase the standard deduction, the percent of filers who claim the mortgage deduction would drop sharply.
The Senate bill also makes two changes on home-related financing. It disallows interest deductions for home equity loans. And it lengthens the time one must live in a home to get the full tax-free exclusion on one’s gains when you sell it.
The two bills are now being reconciled, and then the single bill will be voted on by both branches of Congress before being sent to the President. All before Christmas? We’ll see.