You’ll likely see more money in your paycheck beginning this month.
That’s because employers must begin using the new tax withholding tables no later than February 15. The updated tables reflect changes made by the new tax law that was signed into law in December.
The withholdings tables, and therefore your paycheck, reflect the increase in the standard deduction, repeal of personal exemptions, and changes in tax rates and brackets.
But you won’t only notice a change in your paycheck. Here are the biggest ways the new tax law impacts both homeowners and house hunters:
*Unless otherwise noted, the changes made under the new law go into effect for the 2018 tax year, meaning you’ll first notice them on the tax return you file in 2019.*
1. Mortgage Interest Deductions
Under the expiring law, homeowners can deduct interest on a mortgage loan of up to $1 million ($500,000 for married taxpayers filing separately).
Under the new law, you can only take a mortgage interest deduction on mortgage debt of up to $750,000 ($375,000 for married taxpayers filing separately). That includes your primary home and one other qualified residence.
The new law only applies to people who closed their loans after December 15, 2017; people who closed before are grandfathered in to the former law.
The interest on home equity loans is now dependent upon the usage of the funds. If the funds are not used to acquire, construct, or substantially improve a qualified residence or the mortgage is not secured by the residence, the interest would not be deductible.
2. Property Tax Deductions
Beginning in 2018, all your state, local, real estate, and sales taxes are essentially grouped together to determine deductions from your federal income taxes. You can only deduct up to $10,000 between all four ($5,000 if you’re married filing separately).
Taxes that are paid or accrued through doing business or trade are exempt.
3. Estate Tax Deductions
Under the expiring law, estates typically pay 40% federal tax on inherited property. That tax is waived for estates worth up to $5.4 million.
Under the new law, the baseline exemption amount goes up to $10 million. It applies to the estates of people who die after December 31, 2017 but before January 1, 2026.
4. Loss Deduction
Currently, you can deduct loss from a house fire, flood, or burglary if each loss is more than $100 and the total loss exceeds 10% of your adjustable gross income.
Starting in 2018, you can still deduct those losses using the same rules. However, the loss must have occurred during an event that the President officially declares to be a disaster.
5. Moving Expenses
Under the expiring tax law, moving costs are deductible if your new job is at least 50 miles farther from your old home than your old job was from your old home.
Under the new tax law, you can’t deduct moving costs unless you’re a member of the military.
6. One Last Thing Worth Mentioning
One thing that won’t change under the new law is the capital gain tax exemption when selling a home.
What is a capital gain? Simply put, it’s the profit you receive when you sell something for more than what you spent to acquire it.
There are some exceptions, but typically a married couple filing their taxes jointly can exclude up to $500,000 ($250,000 for single filers) in capital gains on the sale of a home. However, they must have used it as a primary residence for at least two of the last five years and they cannot have excluded the gain from another home sale in the two-year period before the sale.
(Most of) This is Temporary
The new tax law is in effect from 2018 through 2025. The portions that apply to corporations are permanent; however, the parts we discussed in this blog (changes to individual taxes), are temporary. They’re set to expire after the 2025 tax year, unless they’re renewed before then.
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Disclaimer: Wyndham Capital Mortgage, Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.