Tips & Tools

Are There Still Tax Benefits from Homeownership?

April 12, 2019

Recent changes to federal tax codes may have your clients wondering if they’ll still see tax benefits from homeownership. We’ve rounded up some fast facts and industry opinions to help keep you in the know.

Itemized deductions:

Because the standard deduction nearly doubled, fewer taxpayers may be incentivized to itemize deductions on their federal returns. Consequently, home-oriented deductions—like mortgage interest and property taxes—may not be as enticing.

Mortgage interest:

The mortgage interest deduction now maxes out on debt up to $750,000 (married, filing jointly), rather than $1 million. This applies to the taxpayer’s total mortgage interest on all home loans, and there are exceptions for homes purchased before December 15, 2017.

For the most part, these changes mean almost nothing to people who didn’t itemize anyway or have small mortgage balances that don’t exceed the new limits. People with large loans, however, might notice the change.” – Business Insider

Property taxes:

$10,000 is now the deduction cap for property taxes, state and local income taxes and sales tax combined.

Points paid at closing:

Loan discounts are currently still deductible if they’re used to secure the loan or improve the property.  Read more at The CPA Journal.

Mortgage insurance:

The provision for PMI deductions hasn’t been renewed for 2018.

Moving expenses:

Your active-duty military clients may qualify for this deduction, but they’re the only ones. Non-military moves no longer have deductible expenses and, according to the IRS, relocation reimbursement by employers is now taxable income.

Rental property deductions:

No changes were made, so mortgage interest and qualified operating expenses should still be deductible.

Capital gain exclusion:

This one is also unchanged. So, as long as your clients have lived in their home for two out of the last five years prior to selling, they can look forward to a big tax break.

“If you qualify for the valuable principal residence gain exclusion break, a married couple can avoid paying any federal income tax on up to $500,000 of home-sale profit. For unmarried individuals, the maximum tax-free profit is $250,000.” – MarketWatch

The bottom line…

Tax advantages, real and perceived, may not be as persuasive to homebuyers now as they have been in recent years. But, buying a home is still a smart financial move for many. Moreover, there are benefits beyond the pocketbook that your clients will consider when deciding whether homeownership is right for them.

“I still believe that, in addition to making sure our clients make a sound investment, we sell them a dream. That dream has to make financial sense, but the ancillary benefit, the personal benefit – that benefit cannot have a dollar sign attached to it. It’s simply priceless.” – Frederick Peters, via Forbes

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