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How the New Tax Law Affects You

Property Taxes


What Changed

With the passage of the TCJA, the after-tax benefit of homeownership has become less clear. While it appears to level the playing field, tax-wise, between renters and owners, the expense of renting may still exceed home owning in many markets.   

Most importantly, the tax changes impact each household differently. With so many changes to many of the inputs to your tax return, whether you benefit from the changes and to what degree will be a function of where you live, how much debt you currently owe, who makes up your household, the type of debt you have, and how much you make.

To understand exactly how you are impacted by the TCJA, you will need to work through a projection with a tax professional. Until you do, here is a summary of some of the key home-related changes.

  • Interest on home equity debt, such as home equity lines of credit, may no longer be tax deductible, especially where draws against the line are used to pay expenses not related to home improvement. This takes effect for tax years beginning after December 31, 2017, and remains in effect until 2025.


What You Should Do Now

Homeowners with home equity-based debt may want to meet with their Loan Officers. Depending on their circumstances, it may work to their advantage to consider a cash out refinance, while interest rates are still relatively low. This would retire their home equity loan product and take out a larger mortgage. Assuming the new mortgage does not exceed the $750,000 threshold, the interest paid would then qualify for the deduction for those still planning to itemize, assuming the benefit will exceed the cost of refinancing.


The Takeaway

While the experts are still sorting out the net impact to taxpayers-at-large, it is generally thought that despite the changes, many taxpayers could see a rise in their after-tax income despite the elimination of so many popular deductions. Should that be the case for you, those extra dollars could make it easier to save money toward a down payment if you are not yet a homeowner. For current homeowners, it could make renovations and repairs more affordable.

In the end, decisions around homeownership have always involved more than tax calculations. Historically, homes have helped their owners meet their growing family’s needs, improve their comfort level, and build wealth through the growth in their equity. So, in a way, by deemphasizing tax considerations, the TCJA may realign the decision to own a home of your own with its actual benefits, maximizing your quality of life, rather than your deductions.

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