Undoubtedly, you have considered the many advantages of owning your own home. Being out from under a landlord's regulations is an attractive motivation to hunt for real estate, and so is the chance to really show your style in furnishing and decorating your home. You may long to have family gatherings and parties with friends that your rental unit does not allow.
You may also see the purchase of a new home as an investment. Depending on the market, the value of your home may provide you with financial security for years to come. Homeownership also carries some tax advantages. However, you may want to understand the new tax reform and how its rules will affect you if you purchase a home in 2018.
How do the tax changes affect your plans to purchase a home?
The first financial benefit many new homeowners expect is the ability to deduct their mortgage interest when they itemize on their tax forms. In fact, 75 percent of homeowners who itemize include their mortgage interest, saving almost $2,000 on average. Itemizing is only practical when your total itemized deductions are higher than the standard deduction. However, with the new tax code, the standard deduction is almost twice what it was previously, reducing the incentive for you to itemize.
Other important changes that may affect your taxes after buying a home include the following:
- You will only be able to deduct $750,000 or less in mortgage interest, not the previous $1 million deduction.
- The new law eliminates the deduction for mortgage interest on a vacation home or second home you purchase this year or hereafter.
- You will no longer be able to deduct any interest you pay on a home equity loan, whereas tax laws previously allowed a homeowner to deduct as much as $100,000.
- You can no longer deduct any state and local property taxes that exceed the new limit of $10,000 total.
This final point is likely to affect many New York homeowners since, in some counties, property taxes exceed $10,000 for nearly 75% of homes. If you are considering purchasing a property in one of these counties, you would do well to seek as much counsel as possible to protect your investment.
As with any complex transaction, it helps to have professional advice before moving forward. An experienced real estate attorney can assist with every aspect of the transaction to ensure the purchase of a new home goes smoothly and meets your goals.