How the Trump Tax Law Affects Property Tax Deductions
Hey everybody, it’s Your Favorite CPA, Eric Pierre. For those of you who aren’t aware, the new tax bill called the “Trump Tax Law” which passed at the end of last year made some significant changes on how we deduct a mortgage interest in our property taxes. So, let me walk you through real quickly what changed between the old law and the new law.
Let’s start with the mortgage interest. If you had a mortgage that originated prior to December 15, 2017, the mortgage for $1 million and under, that interest is fully deductible in your tax return. Now, with the new law for new mortgages after December 15, 2017, that number has dropped to $750,000 and under. For property taxes under the old law, all property taxes were fully deductible. But as of 2018, property taxes had been capped at $10,000. And the way to get that property tax deduction’s a combination of your property taxes and state income taxes or your property taxes and sales taxes.
Let me walk you through a quick example. Joe and Janice Smith purchased a $1 million home and they make a 20% down payment which leaves them with an $800,000 mortgage. Out of the $800,000 mortgage, they will not be able to fully deduct all that mortgage interest because the federal government starts deducting interest after $750,000. These taxes are always gonna be higher than $10,000. So, the property tax deduction on their tax returns will be at $10,000 even.
For more questions about how this could impact you and your business, please contact me, Your Favorite CPA. My team and I, are here to help you keep more money in your pocket and less in Uncle Sam’s. Take care.