2018 ushered in new federal income tax laws that have many homeowners scratching their heads and wondering how the changes will affect them come next year's tax filing season. The answer: It depends.
It depends on a host of factors, such as the value of your home, the amount of real property taxes you pay, and whether you take the standard deduction or itemize deductions.
For those who take the standard deduction, the amount of the standard deduction will increase in 2018 from $6,350 to $12,000 for single filers and married couples filing separately, and from $12,700 to $24,000 for married couples filing jointly.
For those who itemize deductions, there are several federal income tax law changes related to homeownership that you need to be aware of, including:
In our recent Outlook, we explored the impact of the recent federal income tax law changes on two hypothetical families who are in the market to buy a home – the Smiths and the Johnsons1.
The Smiths are a median-income family of three from Mississippi while the Johnsons are a high-income family of three from New Jersey. In this exercise, we looked at the various payments and taxes they would face if they bought a home which is valued at four times their income.
For the Smiths, who take the standard deduction, the tax law changes would have little impact on their taxable income and their total tax savings under the 2017 and 2018 tax laws would be equal. For the Johnsons, who itemize their deductions, the impact of the tax changes would be much higher. Their taxable income would go up significantly and, as a result, their tax savings under the 2018 tax laws would be about $5,738 versus $32,779 under the previous laws.
Whether you're a homebuyer or homeowner, it's important to talk to your tax professional about how the recent federal income tax law changes will affect you because they will impact everyone differently.
1See our February Outlook for a closer look at how the recent federal income tax law changes would impact the Smiths and Johnsons.