With changes in the tax laws, its important to take note of what can and cannot be deducted this tax season, as it relates to real estate. We’ve found four major areas homeowners need to be aware of before preparing their 2018 tax returns; however, individuals should seek the guidance and advice of a certified public accountant, financial planner or tax professional for specific questions related to tax implications associated with purchasing or selling a home in 2018.

  1. Standard vs itemized deductions – The new tax laws have almost doubled the standard deductions, which now stand at $12,000 for single taxpayers, $18,000 for heads of household and $24,000 for joint filers and surviving spouses. By increasing the amount for standard deductions, many taxpayers will no longer benefit from itemizing deductions.
  2. Mortgage interest – Interest paid on a mortgage for a primary residence can often be deducted if the taxpayer chooses to itemize their deductions; however, during the current tax season, this may or may not be the most advantageous route since the amount for standard deductions was increased.

Homeowners who paid interest paid on HELOCs and home equity loans can no longer deduct this debt from their taxes, unless it was used to build or substantially improve the property.

  1. Closing costs – Several fees are incurred when closing on a property, but only some are eligible for a tax deduction, such as: sales tax, real estate taxes, mortgage interest paid at settlement, real estate taxes paid by mortgage lender, interest paid at the time of purchase and loan origination fees. Double check with a tax professional to find out what costs could be deducted from 2018’s taxes, and if it will outweigh the standard deduction.
  2. Property taxes – New this year, is a limit on the amount of property taxes a taxpayer can deduct on their return. From now through 2025, there is a $10,000 limit on deductions for state and local taxes, which includes property taxes. Depending on the property tax rates in a specific area, this may or may not hurt the filer, and again, this itemized deduction should be compared with the standard deduction.

Just like real estate transactions, tax returns can sometimes become complicated, and the implementation of new laws may catch some taxpayers by surprise. There’re many benefits to home ownership, including tax deductions, but its important to speak with a tax professional or financial advisor regarding specific questions about 2018 filings and any real estate sales or purchases that took place.