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TAX TALK: Home-Related Tax Breaks Valuable for 2017 Returns, Less so for 2018

Hal Zemel, CPA, J.D., LL.M. 03.26.2018 | TAX TALK

If you own a home, you may be eligible for several valuable breaks on your 2017 tax return.  However, under the Tax Cuts and Jobs Act, your home-related breaks may not be as valuable when you file your 2018 return.

2017 vs. 2018

Here is a look at various home-related tax breaks for 2017 vs. 2018:

Property Tax Deduction. For 2017, property tax is generally fully deductible — unless you’re subject to the alternative minimum tax (AMT). For 2018, your total deduction for all state and local taxes, including both property taxes and either income taxes or sales taxes, is capped at $10,000.

Mortgage Interest Deduction. For 2017, you generally can deduct interest up to a combined total of $1 million of mortgage debt incurred to purchase, build, or improve your principal residence and a second residence. However, for 2018, if the mortgage debt was incurred on or after December 15, 2017, the debt limit generally is $750,000.

Home Equity Debt Interest Deduction. For 2017, interest on home equity debt used for any purpose (debt limit of $100,000) may be deductible. (If home equity debt isn’t used for home improvements, the interest isn’t deductible for AMT purposes). For 2018, the TCJA suspends the Home Equity Interest Deduction. However, the IRS has clarified that such interest generally still will be deductible if used for home improvements.

Mortgage Insurance Premium Deduction. This break expired December 31, 2017, but Congress might extend it.

Home Office Deduction. For 2017, if your home office use meets certain tests, you may be able to deduct associated expenses or use a simplified method for claiming the deduction. Employees claim this as a miscellaneous itemized deduction, which means there will be tax savings only to the extent that the home office deduction plus other miscellaneous itemized deductions exceed 2% of adjusted gross income. The self-employed can deduct home office expenses from self-employment income. For 2018, the miscellaneous itemized deductions subject to the 2% floor are suspended, so only the self-employed can deduct home office expenses.

Home Sale Gain Exclusion. When you sell your principal residence, you can exclude up to $250,000 ($500,000 for married couples filing jointly) of gain if you meet certain tests. Changes to this break were proposed, but were not included in the TCJA.

Debt Forgiveness Exclusion. This break for homeowners who received debt forgiveness in a foreclosure, short sale, or mortgage workout for a principal residence expired December 31, 2017, but Congress might extend it.

Additional rules and limits apply to these breaks. To learn more, contact us. We can help you determine which home-related breaks you are eligible to claim on your 2017 return and how your 2018 tax situation may be impacted by the TCJA. You can reach me at hzemel@berdonllp.com or contact your Berdon advisor.

Hal Zemel, a Tax Partner at Berdon LLP, has nearly 25 years in public accounting and advises businesses in the real estate, manufacturing, distribution, retail, and advertising business sectors. 

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