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2018 Tax Cuts include mortgage interest deduction.

Mortgage Interest Tax Deductible in 2018?

The short answer is Yes.  All homeowners, and most home buyers will still be able to write off mortgage interest.  But you might not have to.

The Tax Cuts and Jobs Act bill that was signed into law on December 22nd, 2017.  Nothing changes for home owners, you are still able to write off your mortgage interest.

This article will help you understand how the Tax Cuts and Jobs Act will affect housing related tax deductions when buying a home in 2018.

Mortgage Interest Talking Points

There is no way to speak directly to each of you that are reading this article to address every and all possible tax saving scenarios.  Everyone’s situation is unique, and your tax savings may vary.

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For the sake of simplifying everything, we are only talking about the owner occupied home mortgage interest deduction.

What we know

  • Under the current tax system, less than 30% of home owners take advantage of the mortgage interest deduction.
  • The standard deduction is being doubled for all tax payers.
  • The tax deduction allowed for mortgage interest on an owner occupied home mortgage was lowered from $1,000,000 to $750,000 for home purchases.
  • There are a couple of controversial aspects of the new tax plan that may not reveal their true impact until after 2018 taxes are filed.
  • For those that own or are buying in high Cost Counties in high tax States may be in for a cap on what they can write off on property taxes.
  • Those buying in a price rage over a million are going to see a cap on the tax deductions for State property taxes.
  • If you work in a W2 job now, and your payroll is managed by a major payroll service, chances are, you’ll start taking home more money as soon as February as your deductions are adjusted to reflect your higher take-home.
  • Mortgage credit certificates were saved in the final law.

What we don’t know

  • At the end of the day, you don’t know exactly what the final impact will be until you finish your 2018 tax returns.
  • Individual mileage will no doubt vary.

What I think

  • This may remove the need to itemize for many tax payers.
  • I don’t think this is going to be on the radar of most home buyers.  With a mortgage of $750,000, you’re in Jumbo territory.
  • Jumbo loans will require a 20% down payment in most cases, so that puts you in the $900,000 purchase price range.
  • Some Portfolio loans may require less down payment with a higher rates and fees.
  • I think most home buyers get the biggest bang for their buck from the doubling of the standard deduction.
  • The mortgage credit certificate was also on the chopping block in earlier version, but saved in the final bill.  This is a huge tax credit for eligible first time home buyers.

The Biggest Challenge for Buyers in 2018

The bigger story here is whether or not the economy is going to continue to soar along on what appears to be a trajectory that closely mimics growth and prosperity.

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If the economy continues to grow at the pace it’s been growing for the past couple of quarters, expect interest rates to continue to rise.

As interest rates continue to rise, there is likely to rush of buyers into the market.  Fence sitters will (and should) jump into the market because of increased rates are there.

As rates increase, and more buyers come into the market, the increased competition will drive home prices higher.  This is great for home owners, not so great for home buyers.

The truth is going to be in the results, and nothing else.  Might there be winners and losers?  I don’t know, probably.  Life usually works that way.

If you’re educating yourself on this topic, you’re already a winner.  You should talk to a tax professional about any tax related topics that you are considering.

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There are many changes to the tax code, and I am not a licensed tax professional.  Consult an expert!

If you have mortgage related questions, start a conversation below.

About Your Expert

Scott Schang

As a 19 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Rebecca peters says:

    Will I be able to take mortgage interest for both second vacation home?

    • Hi Rebecca, we are not tax professionals here, I would strongly encourage you to contact your CPA or tax professional for how the new tax law may impact your specific itemized deductions.

  • Ivan Nichols says:

    Is there a cap on the actual annual mortgage interest paid, in the new tax law? Also, is a second home mortgage interest still deductible?
    We know there is a cap on the loan amount…
    If there is no cap on mort interest paid, but a cap of $10k on SALT, then you’d need roughly $14k of mort interest to beat the new standard deduction…. Most people won’t have that, unless paired with w second home mortgage interest (if allowed. Also here we assume no other items to itemize, which is reasonable since most deductions go away, except healthcare costs over 7.5% of AGI)
    Thanks

    • Thanks for taking the time to chime in here, Ivan! I have not personally read through all of the changes yet, and I am not a tax professional, so this is just an educated opinion on my part. My understanding is that there is no cap on the mortgage interest paid, and yes, it’s limited to the interest up to the new $750,000 max.

      • Ivan Nichols says:

        Full disclosure, I am a CPA and still can’t wrap my arms around all this…
        However, looks like the mortgage interest deduction is not worth a whole lot if you don’t pay more than 14K annually in mort interest (As only three of the big and commonly used deductions were left in the law – SALT max 10K, mort interest and finally Health Expenses over 7.5% or so of AGI. The last one being the least commonly used of the three.) …Needles to say this will have big implications on the housing market. I see more mortgage prepayments …and some correction in real estate prices, possibly.
        However, notice that if a business owns the home, like an LLC or C corp, interest is still fully deductible ; -)
        Contact your Tax professional, as the above is opinion and speculation on my part, and NOT Tax advice.

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