Leveraging Mortgages for a Better Tax Return | Guest Post
We’re outlining a few key changes that may potentially affect your clients this season in regards to mortgages, as well as providing a few tips on how to use a mortgage to get a better tax return in the future.
April means one thing to many – tax season. As we enter into this year’s tax season, your clients may be talking about what a change in administration and, therefore, change in tax laws, means for their return this year. According to NerdWallet, less than half of all taxpayers — 48 percent — understand how the new law affects their tax bracket, and only 51 percent of Americans are even aware there is a new tax law.
To help quell some fears and give some background on what has changed, we’re outlining a few key changes that may potentially affect your clients this season in regards to mortgages, as well as providing a few tips on how to use a mortgage to get a better tax return in the future.
Higher Standard Deductions
The biggest change affecting the most households this year is the new higher standard deduction – $12,200 for single filers, $18,350 for heads of household and $24,400 for people married filing jointly. Taxpayers have always had a choice between taking the standard deduction or itemizing — taking individual write-offs for things like mortgage interest and charitable contributions — but because the standard deduction has gone up, itemizing will make sense for fewer people. In fact, TurboTax estimates nearly 90 percent of taxpayers will now take the standard deduction, up from about 70 percent in previous years.
New Limits on State and Local Income Tax (SALT) Deductions
Per the new laws, deductions are limited to just $10,000. While this change won’t be a burden to all homeowners, it will hit folks hardest in states with the highest property taxes, which include California, Connecticut, Illinois, New Jersey and Wisconsin.
Interest Deduction for Home Equity Loans
Starting this year, homeowners can deduct interest on home equity loans or lines of credit if the money is used to buy, build or improve your home – making a way for an additional write-off. However, if the cash is used to pay for other expenses – college tuition, for example – the interest isn’t deductible anymore.
Though not directly related to mortgages, moving expense tax allotments have now changed as well. In the past, people who relocated for a job and paid the moving costs could deduct most of their expenses, even if they didn’t itemize. The tax overhaul eliminated that deduction unless you’re an active-duty member of the military.
Knowing the best road forward when filing taxes can be tricky, but we hope this quick summary gives you some conversation starters to discuss with your clients.
Most importantly, if a particular client is looking to increase their refund next year, then it may be time for them to start thinking about buying! On the first tax return post-purchase, additional expenses incurred on a HUD may be tax deductible, including prepaid interest paid at closing. Remember, tax laws change and building wealth through real estate has lasting effects beyond tax benefits or lack thereof. Contact us to find out how you and your client can still come out ahead given the changes.
Want more information?
The Rueth Team is here to assist – don’t hesitate to reach out today.
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