A Brief Homeowner’s Guide to Tax Reform – Decoding the Tax Law

By: Chris Hostetler

Happy home listing season!  It is almost Spring, which brings yard work, allergies, and real estate open houses.  If you’re looking to buy a new home or improve your current home, there are some things you should know about the new tax law, the Tax Cuts and Jobs Act, which goes into effect for the 2018 tax year.  In fact, the law may affect you as a homeowner, even if you aren’t making any changes to your address or spending money to renovate the place.

First, the usual caveat - consult with your tax advisor to better understand how the updates will affect your unique situation.  Now, here are some of the changes:

  • An increase in the standard deduction – Although this isn’t a homeowner’s issue per se, it affects many homeowners who were previously taking itemized deductions.  The standard deduction is basically doubled, so the deductibility of mortgage interest is no longer of value for some people.  As an example, if you are married filing jointly, your itemizable deductions (including the mortgage interest deduction) must exceed $24,000 in order to give you any benefit beyond the standard tax break.
  • A decrease in the mortgage balance that can be counted toward deductible interest payments – If you buy a home and close after December 15, 2017, you may take an itemized deduction for interest on balances only up to $750,000 (or $375k for married people filing separately).  In other words, any mortgage balance you have over $750,000 is not getting you any extra deductions.  The previous tax code limited deductions for mortgages over $1 million. 
  • Limitations on the deductibility of home equity loans – Going forward, home equity loans can be deducted only if used to buy, build or substantially improve your home.  Previously, you were able to deduct home equity interest regardless of how you used the money, up to a limit.  But no longer can you deduct the interest for your trip to Vail simply by putting it on the home equity line.

  • Limitation on the deductibility of State and Local Income Taxes (SALT) – Under the new tax code, $10,000 of SALT is just the right amount to get the maximum deduction.  Any more than that, and you’re not getting any additional deductions on your federal taxes to offset what you’ve paid to the state and local municipalities. Because property taxes are a substantial portion of SALT, this will likely affect homeowners more than renters. It will also have a larger effect on taxpayers in high-tax states (such as New York).
  • If you own a second home – there were no general rule changes directed specifically at owners of second homes, but all of these limitations on deductions make it more likely that second-home owners feel the impact of the changes.

Whether you are looking to purchase your dream home or remodel your existing abode, we hope this breakdown of the biggest changes to the U.S. tax code affecting homeowners helps you to make wise decisions with confidence!  If you would like to explore your situation with an advisor, we are happy to talk with you.


Hilltop Wealth Advisors does not provide tax advice.  The tax information contained herein is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.