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Mortgage Loans

Tax Changes Homeowners Need to Know About

If you're a homeowner, you’re likely familiar with Form 1098 which states how much you paid in mortgage interest last year. You need this figure to write off your mortgage interest and reduce your taxable income. It’s the same procedure each year. But going forward, the tax breaks you receive as a homeowner could change.

Tax changes are coming down the pipe in 2018, and some of these changes will affect new and old homeowners alike. Here’s what you can expect for next year's tax return.


1. New limits on mortgage interest deduction

The mortgage interest deduction might have been one of your largest tax breaks. If you were spending $10,000 in mortgage interest each year, and were in the 25% tax bracket, you typically saved about $2,500 in federal income tax, resulting in a lower tax bill or a higher tax refund.

Tax reform doesn’t eliminate the mortgage interest deduction, but it does limit how much some homeowners can deduct on expensive properties. Currently, you can deduct interest paid on mortgage debt up to $1 million. Starting this year, you can only deduct interest on mortgage debt up to $750,000.


2. Interest paid on home equity loans no longer deductible

A home equity loan is an excellent tool for tapping your equity without selling your home. You can borrow a percentage of your equity and use the cash for just about any purpose, including debt consolidation, college expenses and a home renovation. But if you’re thinking about getting a home equity loan in 2018, you can no longer deduct interest paid on these loans unless they are used to buy, build, or substantially improve a property. 

If you are looking to renovate your home, we offer two home renovation loan options. These loans—which are available for both purchases and refinances—allow you to include the cost of home repairs in the mortgage. Contact a loan expert at Cherry Creek Mortgage to learn about these home renovation loans and to see if you’re eligible.


3. You may no longer need to write off your mortgage interest

Writing off mortgage interest requires itemizing your tax return and forgoing the standard deduction. Standard deductions for taxpayers will increase in 2018. And with this increase, some homeowners may no longer need to deduct their mortgage interest to lower their taxable income. 

Let’s say you’re a married couple filing jointly and you pay $16,000 in mortgage interest during the tax year. For your 2017 taxes, the standard deduction is $12,700. Since the amount you have paid in mortgage interest exceeds the standard deduction, it makes sense for you to itemize your return and write off your interest payments. In 2018, however, the standard deduction for couples filing jointly jumps to $24,000. With the higher standard deduction, you can skip the mortgage interest deduction and still save money. 


Bottom Line:

If you’re a homeowner or you’re thinking of buying a property, it’s important that you understand how upcoming changes will affect your bottom line. This can eliminate surprises and help you decide which loan works best for your goals.

Whether you’re buying or refinancing, Cherry Creek Mortgage has a program that’s right for your situation. Give us a call and one of our loan experts will happily discuss your options.


***This material has been prepared for informational purposes only. Please consult your own tax adviser regarding the tax consequences and deductibility of mortgage interest and/or property taxes.