Doing Your Taxes? What You Need to Know
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Tax season officially began on January 28, 2019 for all 2018 tax returns. And we know it can bring a lot of anxiety for taxpayers—especially with the recent tax law changes. If you purchased a home in 2018 or are looking to buy a home in 2019, you’re probably interested in learning the impact of the tax reform. We understand it can be confusing to navigate so we’ve put together some of the changes that may impact you the most.Itemized Deductions
The new tax law is designed to put more money in the hands of consumers by lowering the tax rates and increasing the standard deduction. The higher standard deduction means fewer individuals will itemize deductions. So, what does this mean for you?
- For taxpayers with few itemized deductions: this means taking the standard deduction will exempt twice as much of your income from federal taxation.
- For those who currently itemize: it may now make more sense to take the standard deduction and have less income subject to federal taxation.
If you do decide to itemize, keep in mind that beginning in the 2018 tax year, you’ll no longer be able to deduct:
- The maximum mortgage amount for which interest can be written off has been lowered from $1,000,000 to $750,000. This doesn’t apply to existing financing in place (before December 15, 2017).
- Interest on home equity money you borrow for non-renovation purposes is no longer tax deductible. We recommend checking your specific situation with a tax expert.
- Moving expenses. This has been suspended until the 2026 tax year for the federal government. For now, only active-duty military members (and their families) who relocate due to their orders can still claim this deduction. Keep in mind, some states still allow moving expenses to be deducted on your state tax return.
State and local tax deductions address whether you can deduct state income tax and/or sales taxes if you decide to itemize your deductions. With the new tax reform bill, the deductions are now limited to the total deductible amount to $10,000 (including income, sales, and property taxes). So, if you live in a state with high taxes (we’re looking at you, New York and California) you may not be able to deduct all your state and local taxes. If you live where these taxes are less than $10,000 already, this shouldn’t impact your tax return.Tax Brackets
Now, let’s talk about tax brackets for a minute because some of the biggest changes are in this area. The new law adjusted the rates in most of the tax brackets and the income range for each bracket has been adjusted as well.
Here’s a cheat sheet to see the changes in the tax brackets from 2017 to 2018 for both single filers and those who are married and filing jointly.
It’s also important to note that the tax policy for capital gains remains unchanged from the previous law—which states homeowners must live in their home for two out of the past five years to qualify for the exclusion. This is good news for homeowners looking to list their home for sale on a more flexible timeline without the fear of paying a large amount in taxes.Looking Ahead
Now that we’ve covered a lot of the big changes that could impact your 2018 taxes from a homeowner’s standpoint, let’s look at any changes coming your way for your 2019 taxes.
- Income tax brackets will increase to cover inflation.
- The standard deduction will increase to $12,200 for single filers and $24,400 for married couples filing jointly.
With this being the first major tax change since 1986, its impact will be uncertain for quite some time. Most of these changes will remain until after 2025 so it’s always good to know your options and how to plan for the years ahead.
Churchill Mortgage doesn’t give tax advice and we highly recommend you work with a tax professional to discuss your specific situation.