In 2018, the new tax law formerly known as the Tax Cuts and Job Act, made several major changes which affect property owners. Navigating the changes can be onerous, so we have simplified the basic rules for primary residence, vacation home and rental property owners.

Home Equity Lines of Credit

Any interest paid on a home equity line of credit will not qualify for the home mortgage interest deduction unless the proceeds of the loan are used to acquire or improve the residence. However, the deduction of mortgage interest is used to acquire or improve the residence. However, deduction of mortgage interest used to acquire a second home is permitted.

Vacation vs. Rental Properties

An owner may only use a rental property for personal use for up to 14 days per year. The 14-day threshold may be extended if the stay is related to property maintenance work.

Rental Properties 

Rental properties are not subject to the deduction limitations. Property owners may deduct interest expenses on the debt of the property, all property taxes, management fees, and repairs, and take deductions for any depreciation.

Limit on Standard and Itemized Property Tax Deductions

Unlimited deductions of state and local taxes are no longer allowed for primary residence owners. The legislation will allow individuals $5,000 for itemized deductions and $12,000 for standard deductions in state and local property taxes.

Downsized Mortgage Interest Deductions

New homebuyers will now only be able to deduct interest on the first $750,000 of mortgage debt on a newly purchased home unless the debt was incurred prior to December 15th, 2017. In which case, a deduction of interest on a mortgage of up to $1M is permitted.