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How the New Tax Law Affects the Mortgage Interest Deduction

By Rosemary Liuzzo Mohamed

The Tax Cuts and Jobs Act was signed into law at the end of 2017 and will have an impact on homeowners in the United States.

The mortgage interest deduction on a mortgage taken to purchase a home prior to December 14, 2017 allows a borrower to deduct interest on up to $1 million in mortgage debt, even if the purchaser refinances the mortgage to get a lower rate. Prior to 2018 the interest on a home equity loan of up to $100,000.00 was deductible as well.

Mortgages taken to purchase a home after December 14, 2017 up until 2026 will instead allow a borrower to deduct the interest on up to $750,000.00 in mortgage debt. The interest deduction on home equity debt has been completely wiped out as of 2018 and will remain this way until 2026, unless new legislation is enacted beforehand.

Although many of the homeowners in the United States – those whose home are worth under $750,000.00 – will not be hurt by this new law, many homeowners in New York (as well as California, Florida, New Jersey & Connecticut) will be affected.

People who already own homes worth over a million dollars may not want to move and will continue enjoying the old interest deduction benefit. People considering buying a more expensive home may reconsider as well, thereby holding on to the less expensive property, which is already hard to find. The future homebuyers will suffer.

The good news is that despite a possible attempt to eliminate the exclusion on capital gains for higher-income taxpayers from the sale of a primary residence, taxpayers who sell a home may still in fact exclude up to $250,000.00 of gain from taxation. Married couples, if filing jointly, may still exclude up to $500,000.00 of gain. The gain may only be excluded if the seller has both owned and used the property as their primary residence for two of the past five years. Another possible version of the bill would have increased this provision to five of eight years. Thankfully, it did not.

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