The information in this article is up to date through tax year 2018 (tax returns filed in 2019).
If you bought or sold a home before 2018, you probably found you were eligible for certain tax breaks that specifically benefitted homeowners. But several of those deductions and exemptions were affected by the Tax Cuts and Jobs Act. If you were a homebuyer or seller in 2018, here’s what will be different when you file your taxes compared to the past.
State and Local Tax Deduction
If you itemize your deductions, you can deduct the property taxes you pay each year. When you bought your home, you probably reimbursed the seller for taxes they prepaid (the amount can be found on your settlement documents).
Before Tax Reform (2017): There was no limit to the amount you could deduct for state and local taxes.
After Tax Reform (2018): The amount you can deduct for all state and local income, property, and sales taxes combined is capped at $10,000. Depending on your circumstances, you might choose to deduct more property tax and less state income tax, or vice-versa. Either way, the tax law states that the total dollar amount you deduct cannot exceed $10,000 per return. If you are married, you are still held to the same limit. If you are filing separately, you and your spouse may deduct $5,000 each, for a total of $10,000.
Moving expenses
Before Tax Reform (2017): If you had to relocate for work and you met certain criteria, the IRS allowed you to deduct expenses related to your move. If you were eligible for the deduction, you could claim transportation, lodging, packing materials, storage and insurance.
After Tax Reform (2018): Moving expenses are no longer deductible, even if they are job-related. The only exception is for the military. Active duty service members moving on orders can still deduct moving expenses.
Mortgage Loan Interest Deduction
The IRS allows you to deduct the interest you pay on the loan taken out to buy your home.
Before Tax Reform (2017): For mortgages secured by December 14, 2017, the maximum amount of debt eligible for the deduction was $1 million.
After Tax Reform (2018): The new law lowered the maximum debt allowance. You can now deduct interest on mortgages up to $750,000.
Capital Gains Tax Exemption
If you live in your house for at least two out of the five years before you sell it, you may be exempt from paying tax on some of the capital gains from your home sale.
Before Tax Reform (2017): If you met the criteria for the capital gains exclusion, it meant that the first $250,000 ($500,000 filing jointly) in capital gains on the sale of your house were not subject to tax. Otherwise, the tax rates on long-term gains were 0%, 15%, and 20%. Your rate was based on which tax bracket you were in.
After Tax Reform (2018): The capital gains exclusion was not changed by the Tax Cuts and Jobs Act, and the capital gains tax rates stayed the same at 0%, 15%, and 20%. The difference is, your rate is now determined by a new income threshold. The breakdown looks like this:
- 0% for income up to $38,600 for single filers ($77,200 for joint filers)
- 15% income between $38,601 and $425,800 ($77,201 to $479,000 for joint filers)
- 20% for $425,801 and up ($479,001 and up for joint filers)
Foreign real estate deduction
Before Tax Reform (2017): If you owned property outside the U.S., the taxes you paid to that foreign country were deductible as an itemized deduction.
After Tax Reform (2018): If you purchased a home outside the United States in 2018, you will not be able to deduct the foreign real property tax. The new tax law eliminated that deduction.
Standard deduction
Before Tax Reform (2017): As a homebuyer, you would have received some big tax breaks by itemizing your deductions. But if you took the standard deduction instead, you reduced your taxable income by the following amounts, based on your filing status:
| Single | $6,350 |
| Married Filing Jointly and Widow(er) | $12,700 |
| Married Filing Separately | $6,350 |
| Head of Household | $9,350 |
After Tax Reform (2018): The Tax Cuts and Jobs Act put limitations on several itemized deductions, but it also doubled the standard deduction. For many taxpayers it will make more sense to take the standard deduction in 2018. However, if you itemized in the past, run your taxes through TaxSlayer both ways to see which method will benefit you the most. The new amounts for the standard deduction are as follows:
| Single | $12,000 |
| Married Filing Jointly and Widow(er) | $24,000 |
| Married Filing Separately | $12,000 |
| Head of Household | $18,000 |