How the Tax Bill Impacts Homeowners

These changes under the GOP tax plan affect homeowners

  • After this year, the interest paid on loans for vacation homes is no longer deductible.
  • Property, state and local income taxes face a combined $10,000 deduction limit.
  • While the deduction limit pertaining to mortgage interest drops to $750,000 of debt on your primary residence, it remains $1 million for homes purchased before Dec. 15 of this year.
After the many twists and turns that the Republican tax-overhaul legislation has taken thus far, it might be unclear to homeowners what’s in store for them.

In a nutshell, not much that will help them save more on taxes. The bill, expected to receive final approval by lawmakers on Wednesday, includes a variety of changes that could make homeownership a more costly proposition for some taxpayers.

On top of making modifications to the mortgage interest deduction, the bill limits the deductibility of property taxes and state and local income taxes to a combined $10,000. In states such as New York and California where home prices and property taxes are high, this change means some homeowners could face bigger tax bills beginning next year.

And if you were thinking about prepaying some of your 2018 state and local income taxes to take advantage of current law, which is more generous, forget about it. The bill specifically disallows it.

However, it does not specifically ban early payment of property taxes.

In New Rochelle, New York, for example, where the average property tax bill tops $18,000, the city’s 80,000 residents have been alerted that they can prepay the portion due in January (along with prepaying school district taxes due in April).

While the city’s residents have been able to prepay in past years as well, the reminder this year is specifically due to the changes in the GOP tax bill.

“What we’re telling residents is that we’ll accept these prepayments but they should check with a financial advisor first,” said Charles Strome, city manager for New Rochelle.


Aside from limiting the deductibility of property taxes, below are other aspects of the tax bill that impact homeowners. Keep in mind that the only way to take advantage of deductions related to homeownership is to itemize your tax returns.

And because the GOP tax bill roughly doubles the standard deduction for all taxpayers — i.e., it goes to $24,000 from $12,700 for married couples — the combined value of all your available deductions would need to exceed that new amount for itemizing to make sense.

Mortgage debt

If you already own a pricey home and it’s your primary residence, you’re in luck. Under the bill, homeowners who purchased a house before Dec. 15 of this year will be able to continue deducting the interest they pay on mortgage debt of up to $1 million.

For purchases after that date, that cap is lowered to $750,000 — and only for the mortgage on your primary residence. This means that the interest you pay on your loan for a vacation house — or qualifying boat, recreational vehicle or camper — wouldn’t be deductible after this year.

However, if you rent your vacation home — i.e., your rent out your beach house for a portion of the year — you can at least write off the costs associated with that activity, which would include a portion of mortgage interest and property taxes.

Additionally, while the cap on mortgage interest reverts back to $1 million in 2026 regardless of when the home was purchased, there is no provision that would bring back the tax break for second homes.

Home-equity debt

Interest paid on home-equity loans will no longer be deductible beginning in 2018, with no grandfathering in. In other words, if you already have a home-equity loan or line of credit, this is the last year you can write off the interest paid on it for a while.

In 2026, this provision will revert to current law, which allows a deduction for interest paid on up to $100,000 of home-equity debt.

Capital gains exclusion

Taxpayers will continue to be able to exclude up to $500,000 ($250,000 for single filers) from capital gains taxation when they sell their home, as long as they have lived there for two of the previous five years. Earlier versions of the tax bill would have imposed a more restrictive time frame.

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