In 2018, The Tax Cuts and Jobs Act of 2017 will create tax changes to home and securities ownership by changes to itemized deductions on Schedule A.
If you own or are buying a residence and/or second home, you may have the following limitations on your itemized deductions:
1. The combination of real estate and state income or sales taxes paid each year will be limited to a maximum deduction of $10,000. This will be a killer in high state and local tax states. State and local taxes (SALT) normally include state income taxes or state sales taxes (usually the higher of the two) and state and local property taxes, which can include real estate and personal property tax.
2. Interest limitations on new home purchases in 2018. Interest on new home loans has been limited to mortgages of $750,000. If you have a mortgage of $600,000 on your principal residence before 2018, you can only add another $150,000 in 2018 to the loans that deductible mortgage interest would be allowed on a purchase of a second home (meaning if you buy a second home for $300,000, only half the interest on the loan would be deductible on Schedule A.)
If you have non – retirement plan investments in securities like stocks and bonds, you will probably lose any fees you pay directly to your financial advisor to manage your investments, since they are deducted as miscellaneous itemized deductions subject to limitations of 2% of your adjusted gross income (AGI). That category of itemized deductions has been repealed as part of the tax reform (which also includes unreimbursed employee business expenses, tax preparation fees, attorney fees and safe deposit boxes, among other things.) None of these deductions are now an allowable deduction as an itemized deduction.
So going forward, you may have to decide if owning certain real estate or investments is still worth it without the tax savings that used to be included with them. Some planning going forward should become much more important so you know what to expect from an income tax standpoint.
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