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If You Own a Home, you’re eligible for several special tax breaks. But many of these rules changed over the past few years, especially after the Tax Cuts and Jobs Act was signed in December 2017. Here are some of the key tax benefits of owning a home, and how homeowners can make the most of the new rules.
The tax deduction for mortgage interest is one of the most valuable tax breaks for homeowners. But the Tax Cuts and Jobs Act reduced the amount you can deduct. If you bought your home before Dec. 16, 2017, you may be able to deduct the interest paid on up to $1 million in mortgage debt (or up to $500,000 if you’re married filing separately). But if you bought your home after that date, you can only deduct the interest paid on up to $750,000 in mortgage debt (or up to $375,000 if you’re married filing separately).
In the past, you could deduct the interest you paid on up to $100,000 in home equity debt, no matter how the money was used – whether you used the loan to pay for college, or to pay off high-interest credit cards or to renovate your home. But now you can only deduct interest on a home equity loan if you use the money to buy, build or substantially improve the house. The interest is deductible on up to $750,000 of qualified residence loans, which includes both your mortgage and a home equity loan used for home improvements.
Another big change from the Tax Cuts and Jobs Act was the property tax deduction. In the past, your property taxes were deductible if you itemized. Starting in 2018, you can only deduct up to $10,000 in all of your state and local taxes combined. This limit includes property taxes, as well as state and local income taxes that were withheld from your paycheck or made through estimated payments, or state and local sales taxes.