Husband and wife doing taxes in the kitchen

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act. It amounts to a major rewrite of several provisions of the individual and corporate tax code.

There are several big changes with the new tax bill, and there’s been a ton of analysis around the benefits and downsides of those changes, but we wanted to focus on what it means for current homeowners and those in the market to buy a home in the near future.

There’s going to be a big, bold disclaimer at the bottom of this article because it makes our lawyers (and by extension, me) more comfortable, but before we go any further together, I want to make one point as clearly as possible: While this article lays out several facts about provisions in the new tax law, it is not tax advice. Everyone’s finances are different, and if you’re looking for tax advice, feel free to contact a financial advisor, accountant or other tax preparation professional.

With that out of the way, let’s dive in. All the changes in the tax bill that was just passed took effect on January 1, 2018. This means you won’t have to worry about them until you file your 2018 tax return next year.

However, the calendar turning over does mean that we’ve now entered 2017 tax season. With that in mind, there’s one tax change you should know about for your current 2017 taxes that’s gone under the radar in the midst of all the coverage surrounding the updated tax bill just signed by the president. Let’s briefly touch on that first.

Elimination of Mortgage Insurance Deduction for 2017

Every year, homeowners who have a mortgage receive Form 1098, also referred to as the Mortgage Interest Statement. The mortgage company is required to send you and the IRS this form, which shows how much mortgage interest was paid in a given tax year. If you paid more than $600 in mortgage interest, the interest is fully deductible in most cases.

In the new tax bill for 2018, mortgage interest will still be fully deductible in many cases (subject to new restrictions and limits that we’ll get into below). However, there is an important change that occurred in 2017 for your mortgage insurance deductions that will affect your taxes this year.

Private mortgage insurance payments on conventional loans and mortgage insurance premiums charged on FHA and USDA loans were previously considered tax deductible under the mortgage interest provision. Earlier in 2017, Congress decided not to renew that provision for the 2017 tax year. This means that mortgage insurance payments are no longer deductible, beginning with your 2017 return. So while you may continue to account for your interest deductions, insurance payments will no longer be included.

Let’s take a look at how the new tax law will affect homeowners going forward from the date your current tax bills are due (hint: They’re due Tuesday, April 17, 2018).

Unpacking the New Tax Law

Before we get into what’s changing in the new tax code, we should note that while the portions applying to corporations are permanent, all the items pertaining to individuals, which is what we’re interested in here, have a seven-year lifespan. Those items went into effect on January 1, 2018, and expire at the end of 2025. If the amended portions haven’t been renewed before then, the tax law reverts back to what it was before the amendments.

Here’s what the new law changes regarding taxes and your home.

Increased Standard Deduction

One of the major features of the new tax bill is an increased standard deduction. Although not strictly related to homeownership, it may affect whether you take homeownership deductions that only apply if you itemize your taxes.

Under the new tax law, the standard deduction is $12,000 if you’re single and $24,000 if you’re married and filing a joint return. You can also get $2,000 in tax credits for each child you have and up to $500 for non-child dependents.

This standard deduction is increasing, but personal exemptions that many used to qualify for are going away. Whether you’re a single filer or filing jointly, the increase in the standard deduction will more than cover the size of the old standard deduction, even with all the exemptions you could take. However, there are no more exemptions to add to your standard deduction.

The following deduction changes are specific to homeownership if you choose not to take the standard deduction.

Property Tax Changes

Under the former tax law, you could take full deductions for every dollar of your local, state and property taxes.

In 2018 and going forward, your state, local and real estate taxes are put into one pool for deductibility purposes. Between the three of them, you only can deduct up to a limit of $10,000 total.

Mortgage Interest Deduction Changes

In addition to the mortgage insurance deduction change in effect for the 2017 tax year mentioned above, the tax bill makes several important changes to the mortgage interest deduction provision of the tax code in 2018 and going forward.

Starting in 2018, you’ll be able to deduct mortgage interest on qualifying residences (primary and vacation homes) with total mortgage amounts up to $750,000 for joint filers ($375,000 if married and filing separately). This does mean that if you’re a new homeowner buying a home that’s more on the expensive side, you won’t be able to deduct your full interest amount.

If you closed on the loan for your home before December 15, 2017, you’re grandfathered in under the old limits, which is $1 million for joint filers ($500,000, if married and filing separately).

You used to be able to deduct up to $100,000 worth of interest for a home equity loan taken out in order to do something other than buy , build or improve your home. You could take this deduction if you borrowed from your home equity in order to give a college or retirement fund a boost, for example. As of January 1, 2018, this type of home equity deduction no longer exists. If you have any doubts as to whether your mortgage interest qualifies under the new rules, seek the advice of a tax professional.

Moving Expenses

Under the former tax law, there was a limited ability to deduct moving expenses when the relocation was work-related. Starting this year, this only applies to active-duty members of the armed forces.

Those are the big changes in the new tax law that are impacting homeowners. Here’s more information on this year’s 1098 mortgage insurance deduction elimination.

*Please note that none of this information shall be construed as tax advice. If you’re seeking tax assistance, please reach out to your tax professional or the IRS.

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This Post Has 41 Comments

  1. I would like to know if I am going to be grand-fathered under the old $1 million mortgage interest deduction or the new $750k deduction limit. I completed the application/deposit for a home with a mortgage over $1 million dollars in August 2017. It was a new home being built and move in/closing date is April 1, 2018. Please advise.

    Thanks

    1. Hi Hasan:

      For purposes of the tax law, it’s based on the closing date. You would be under the new limit of $750,000.

      Thanks,
      Kevin

  2. Because I don’t see anywhere to enter it (Line 13 of Schedule A is completely gone now), I assume I can’t deduct the remainder of my un-deducted Upfront PMI that I paid in 2016 when I purchased my home? Because it’s deductible over 84 months, I still have a large portion not deducted. So in essence, the 2016 tax instructions probably should have stated that all that will ever be deductible of Upfront PMI if you purchased a home in 2016 and paid upfront PMI is a very small, prorated amount….that you’d never be able to fully deduct in future years? I understood the monthly paid PMI was going away, but the way it is now, the only people who got to fully deduct the Upfront PMI were people who purchased their homes in 2010, correct? I’ve been trying to find clarification on this, but am coming up with nothing. Thanks for your response.

    1. Upfront mortgage insurance payments were always deductible until this year. Now you can no longer deduct any mortgage insurance. This is a recent legal change and the person that put you in the mortgage couldn’t have known the law was going to change. It’s unfortunate, but that’s where we’re at right now. You can continue to deduct prepaid mortgage interest points because that’s mortgage interest and not mortgage insurance but you can’t deduct PMI or MIP. It sounds like you might be talking about mortgage interest points because that’s something that’s typically deductible over a number of years. I just want to make sure you know the difference because this gets confusing.

      Thanks,

  3. Hi Kevin Graham. First I want to thank you for the article as well as answering question which I know the legality disclosure and respect it to get advice from tax so called expert. However, you are smart I can tell so my question is I bought a condo closed July 7th, 2017. We have an FHA it a strange one, but I di not want to write a book. So I have the PMI I think it is $32/month which drops off if I reach the 20% I put 10% down or 11 years. They said I have to call they will not just take it off. People need to remember that the mortgage company will not just remove this fee you have to call I was also told with upgrade to my condo I can pay for someone to come out and check my condo’s value if my upgrade, etc are worth more I was told I can give the document from the inspector/not sure the name of the person that values homes/condo but then the PMI will drop off if I am over the 10% I also am making payments of at least $100/month toward my principal. So my question is am I able to deduct that. Sorry I know I write confusing and I am also confused with the insurance being able to write of or not sine I closed in July 2017. Thanks.

    1. Hi Jay:

      Thank you for the kind words. I think ultimately you’re going to need to speak with someone. The reason I say that is I can’t tell based on what you’re telling me whether you have an FHA or conventional loan. For the purposes of mortgage insurance, that makes a big difference. I’m going to try to break some of this down, though.

      First, the tax piece, because in this case that’s actually the easy part. Unfortunately, because Congress did not renew the mortgage insurance deduction, you can’t deduct payments for any type of mortgage insurance no matter what type of loan you have. Also, while you can deduct payments for mortgage interest, you can’t deduct extra payments toward the principal.

      Regarding when the mortgage insurance drops off, if you do have an FHA loan where you put 10% down, it comes off after 11 years. In the case of the FHA, it does come off automatically. That’s regulated by a federal agency. For the rest of this though, it sounds like you’re describing the policies on a conventional loan where you can have mortgage insurance taken off if your house re-appraises at a higher value and you have more equity. We would really need to know exactly what you have to be able to give you definitive advice. I’m going to suggest you call one of our Home Loan Experts at (888) 980-6716.

      Thanks,
      Kevin Graham

    2. Kevin thank you for replying so fast to my message. When I get everything together I will call. I think I made a mistake and it is embarrassing because I should know what I have. I know they said at fist I could not get an FHA in this Cond place we live which has 2,580 units. They said because of some old outstanding law suits. Anyway is it possible I have a conventional FHA…or maybe it is a conventional loan I have I am embarrassed I should know but it was confusing because the loan person was horrible and kept changing things such as the type of loan etc.. At any rate I know they said I would have to call if I made improvements and my value went above to 10% because I did not put 20% down only 10% I have the PMI insurance./ After 11 years yes it drops off but they said I would have to call if I make the payments and do repair and reach it before the 11 years in order to get the PMI off as well I would need a licensed broker or someone to access the value of my condo to prove it is worth the amount need to drop the PMI off early. Thank you so much for your information and just it is great to know good honest people like you exist. I subscribed to ZING and I will post on social media and recommend all I know because I appreciate you instantly responding to me I was shocked and just thank you so much!

      1. Hi Jason:

        I’m glad I could help you! No, it’s not possible to have an FHA and conventional loan. You either have one or the other. It sounds like you have an FHA loan, but whoever you talked to is telling you to call them after you make improvements because you may be able to drop mortgage insurance. You would do this by refinancing into another loan potentially, although with condos, you have to make sure that the actual complex meets the guidelines for a conventional loan. It sounds like there’s some legal trouble there, so if you tried to refi down the line, it may depend on what loan you get.

        I’m sorry I can’t be more specific, but this should at least help with some of the things you need to think about. Definitely feel free to give us a call at (888) 980-6716.

        Thanks,
        Kevin

  4. I read confusing information about interest on a home equity loan/HELOC going forward. Sometimes I’ve read it will be completely eliminated, but I’ve heard others say that it can still be taken but only if it is being used/was used for home improvements–not cash out for other purposes.

      1. Kevin, I think your sources for confirming that HELOC interest is no longer deductible at all are out of date. Both articles you referenced were written shortly after the bill was signed and therefore interpretations were immature. Since then, expert interpretations of the new law are largely in agreement that you CAN deduct home equity debt in certain situations, namely dependent on what the money was used for (primary residence remodeling-yes, purchasing a car -no), and as long as the total of all acquisition debt remains under the 750k threshold. Here is an article from January 2018 detailing the scenarios in which HELOC interest is and is not deductible under the new tax law:

        https://www.washingtonpost.com/realestate/did-the-tax-code-overhaul-kill-home-equity-loans/2018/01/16/626f8054-facf-11e7-ad8c-ecbb62019393_story.html?utm_term=.0851e1b6c635

        Hope this helps!

        1. Thanks for sharing, JS! This stuff gets complicated really quickly. Nothing about the old provisions of the deduction allowing you to deduct mortgage interest for mortgage is taken out to buy, build or improve on a property have been changed. So in theory if you were using the money for those purposes, it should be deductible. I’m going to reach back out to Gwen. That being said, I think it’s important to stress following the advice of a tax professional in this area because of this proves one thing, it’s that the tax code is extremely complex.

          Thanks,
          Kevin

  5. Are you saying that you can own two homes, but both together must equal $750,00 or less? If so, is the tax deducation $10,000 per home – or – for both combined (as long as the homes value is under $750,000? I’m still not quite clear on this, or am I way off the mark?

    1. Hi Alberta:

      I think two different deductions are being conflated here. There’s the mortgage interest deduction and you can claim one primary home and one second home and deduct all interest as long as the total loan amount is below 750,000 if you’re married filing jointly. If you have more than $750,000 worth of homes, you can only deduct interest up to that amount. The $10,000 is the total amount you can deduct between your state, local and real estate taxes.

      Thanks,
      Kevin Graham

  6. The 2018 Tax Law is not perfect but it is a good start. Congress has 7 years to make tax cuts permanent for the rest of us. If we do see that 91% (the figure given by the GOP) do realize a tax cut and better paychecks in the next two years then we should elect those people who represent our special interests…lower taxes and bigger paychecks. The transformation from a leaky spigot system to one of accountability will be painful but necessary. We do not need a return to 2007.

  7. Thank you for this important information. As a senior who wants to maintain & remain in my home, I have to consider all the facts.

  8. You mentions the elimination of mortgage insurance deduction on conventional loans. I thought there wasn’t mortgage insurance on conventional loans?

    1. Hi Debbie:

      I want to clarify a couple of things here. First, the mortgage insurance deduction was eliminated on all loans, not just conventional ones.

      Also, you may or may not have mortgage insurance on a conventional loan. Loans with less than a 20% down payment or existing equity have mortgage insurance. The big difference with conventional loans is that once you reach 20% equity, that portion of your monthly payment can be removed as long as you’re current on your loan. The monthly payment for mortgage insurance can also be eliminated at by taking advantage of a lender-paid mortgage insurance (LPMI) option by paying a one-time fee upfront and/or taking a slightly higher rate. It’s also possible to do a combination of the two and a pay a partial fee upfront to lower your rate with LPMI. Comparing that to FHA and USDA loans, mortgage insurance often sticks around for the life of the loan. Hope this helps clarify things!

      Thanks,
      Kevin Graham

  9. I appreciate tax information.
    As a new homeowner I look forward to these posts!
    Please keep them coming, the information is valuable.

    1. Thank you so much! I’m going to share this with my team. We really appreciate the kind words. A lot of effort goes into this content and it’s nice to hear it has an impact. Have a wonderful day!

  10. The stopping of the home equity loan interest deduction is really bad. That was one of the main ways older couples could get money to make improvements, repairs, etc. I can’t believe groups like the AARP let that get by. Of course, most of the people making these laws never had to take a home equity loan.

      1. Yes this is DEPLORABLE!!! Home Equity Loans and the ability to write off their interest helped many AMERICANS!!! ESPECIALLY Our ELDERS living in a fixed income. We should All hope to be Retired Americas one day, but until then we must protect our fellow Americans in their Seniors years.

    1. Hi Shannon:

      With the exception of VA loans, you’re going to end up paying for mortgage insurance (in some form or another) if your down payment or equity amount is less than 20%. If you have a conventional loan, there’s the option to opt for the lender-paid mortgage insurance (LPMI) and avoid the monthly payment by doing one of the following: You can take a slightly higher rate or pay a one-time fee upfront for mortgage insurance. If you opt for borrower-paid mortgage insurance with the monthly payments, you can request that it come off once you reach 20% equity as long as you’re current on your loan. You can also make a partial one-time payment up front in order to get a lower rate with LPMI. With FHA, if you make the minimum down payment of 3.5%, there is mortgage insurance for the life of the loan. If you make a down payment of 10% or more, you pay it for 11 years. With the USDA loans, there are monthly mortgage insurance premiums that can’t be canceled for the life of the loan. It is worth noting that you can always refinance. Hope this helps!

      Thanks,
      Kevin Graham

  11. I recently purchased a home that is part of a Homeowners Association. I didn’t pre-qualify the reserves in the HOA account, and recently learned recently that due to several improvements (concrete sidewalks and road resurfacing) which are typically covered by my local taxes, will need to be increased. I’m fairly certain I asked this before, but shouldn’t a portion of HOA fees be tax deductible? We have no club house, tennis courts, etc. — Just the basics. Doesn’t seem fair.

  12. What if you have mortgages in 2017 that total $775,000 and a new purchase in 2018 that total $421,000? How does the new law apply to mortgage interest deduction when the old law is a $ 1 million limit and the new is a $750,000 limit?

    1. Hi:

      The new limits apply to any new purchases you make. So the $750,000 limit would apply to the new 2018 loan. That being said, if you plan to keep all these houses, I do know that you can only treat one home as a second home, so at any given time you can only claim interest on your primary and one second home. Ultimately, I would talk to a tax adviser.

      Thanks,
      Kevin

    1. Hi Mary:

      Thanks for reaching out! We can certainly help you look into your VA loan options. If you would like to get started online, you can do so through Rocket Mortgage. Otherwise, one of our Home Loan Experts would certainly be happy to take your call at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

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