Happy Wednesday, everyone! It’s unreal to believe that we are already in the middle of February. “Tax Day” will be here in just 2 short months. I know we have been talking a lot about tax reform and how it will affect you.  While the newly passed tax reform won’t affect many taxpayers in 2017, it will definitely affect your 2018 taxes.

As many of you already know, most of the itemized deductions have been eliminated since the standard deduction was doubled. However, a couple of the old itemized deductions made the cut, with a few changes of course.home under contract

This week, we will discuss the mortgage interest deduction. That’s right – mortgage interest deduction made the cut! However, the rules have changed a bit.

Before tax reform was passed, all mortgage interest was tax deductible for loans of $1 million or less. This $1 million cap still applies for loans taken out prior to December 17, 2017.

For loans taken out after December 17, 2017, mortgage interest is completely deductible for loans of $750,000 or less. Home owners may not deduct interest paid on a home equity line of credit or home equity loan, unless the proceeds were used to substantially improve the home, in which case the interest is tax deductible up until the cap previously mentioned.

The $750,000 cap is for all homes. It doesn’t apply to each individual mortgage. So, for example, if you have a smaller mortgage (say $400,000) on your current home, mortgage interest is completely deductible. If you decided to purchase a second home with a $425,000 mortgage, only mortgage interest on $350,000 of that amount would be deductible ($750,000 cap – $400,000 mortgage for first home = $350,000 remaining).

Many accountants believe this decrease in the mortgage interest cap will significantly impact the “second home purchasing market” even more greatly than the “first home purchasing” market. Of course, only time will tell.

If you have questions about your ability to deduct mortgage interest or the mortgage interest on a second home, allow our tax experts to help! Our tax advisors have completed extensive training and continuing education seminars so they can best serve our valued clients. Call today and schedule your free consultation!

countdownAs a friendly reminder, “Tax Day” is Tuesday, April 17 this year. In order to meet this deadline, we ask that you submit all tax data to our office no later than Friday, March 30 to ensure that an extension need not be filed. Don’t forget to check out our tax season promo offers!

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Konish, Lorie. “Tax Bill May Squash Your Dream of a Second Home.” CNBC, 22 Dec. 2017, www.cnbc.com/2017/12/22/tax-bill-may-squash-your-dream-of-a-second-home.html.

Laryea, Brittney, and Shen Lu. “Tax Reform 2018 Explained.” Magnify Money, 22 Dec. 2017, www.magifymoney.com/blog/news/tax-reform/2018-explained/.

Orton, Kathy. “How the Tax Bill Impacts Homeowners, Buyers, and Sellers.” The Washington Post, 20 Dec. 2017, www.washingtonpost.com/news/where-we-live/wp/2017/12/20/how-the-tax-bill-impacts-homeowners-buyers-and-sellers/?utm_term-.4ff4va6ac8e0.