How 2018 Tax Reforms May Impact You

The Tax Reform Bill that was passed by Congress and signed by the President on December 22^nd, 2017 took effect on January 1^st, 2018.  Quite a few changes to the personal deductions that an individual can take on their individual income tax return are now in effect, including those that pertain to owning a home and homeownership.

Mortgage and HELOC Interest

The 2018 tax reforms still allow homeowners to deduct mortgage interest paid. Interest paid on a home equity loan or line of credit, however, can ONLY be deducted if the money was used to buy, build or substantially improve your home. Real Estate taxes paid (County, City and School Taxes) are still deductible, but are now limited. When combined with State and Local Income taxes, the maximum deduction is now $10,000/year.  This will affect many homeowners in a high-taxed state like New York. In New York it’s relatively easy to hit the $10,000 limit when adding all paid Real Estate Taxes AND State/Local Income taxes together.

Selling a Primary Residence

Homeowners can still exclude gains made on the sale of a Primary Residence up to $250,000 ($500,000 if married filing jointly). However, they have to have lived in the house five of the most recent eight years before the sale of the home in order to claim the exclusion. (The old rule was three out of the most recent five years).  Also, homeowners can only claim this exclusion once in a five-year period.

The New Standard Deduction

One of the biggest changes that the Tax Reform Bill is implementing is the doubling of the standard deduction for all tax filers.  This means that many taxpayers who were able to itemize their deductions on their tax returns in prior years will now find it more advantageous to use the standard deduction when completing their 2018 tax return.  The only way to determine the best way to maximize the tax return results this year is to go through exercise of comparing total itemized deductions to the new, higher standard deduction, to see which method gives the best result.  So, plan on going through the process of gathering all tax deduction documents and other deduction information as in prior years. Making this comparison is vital to minimize the taxpayer’s overall tax liability, and it will be well worth the time. 

If this sounds like too much work, or if the process is confusing, consult with a reputable tax professional. They’ll be happy to provide guidance and direction for the best way to file taxes this year.

Tom Giunta is the owner of Thomas M. Giunta Tax & Financial Services. He has been providing quality tax services to clients in the Rochester, NY area for more than two decades. For more information, call (585) 764-991 8 to ask about the tax services he offers or visit TomsIncomeTaxService.com.