On December 22, 2017 president trump signed into law the new tax plan changing the tax deduction of home ownership. Here’s what this means for you and your home buying efforts in 2018 and beyond.

Prior to December 22, 2017 homeowners could write-off mortgage interest for the acquisition of a primary home or a secondary home as well as all their property taxes. The ability to write-off all your mortgage interests and property taxes as a homeowner helps your bottom line too comes April 15th.

The new tax plan contains some changes to tax deduction for mortgage interest and property taxes. For mortgages, up to $750k of indebtedness for primary homes and secondary homes that mortgage interest is still deductible. For mortgage loans exceeding this amount the ability to write-off dollar for dollar every amount beyond $750k drops.

Additionally, property taxes are no longer deductible beyond $10k.  Property taxes in Sonoma County are based on 1.25% of the purchase price. This means a home purchase price exceeding $800k would mean you would not be able to write-off all your property taxes. $800k times 1.25% is $10k which is the new annual property tax limit under this tax plan that you are eligible to write-off.

The other component to the tax plan is you are no longer able to write-off interest on home equity lines of credit. Home quite lines of credit prior to December 22nd, 2017 were tax deductible. This is going to promote more spending in the form of refinancing as borrowers seek to combine 1st and 2nd mortgages into one.

The reality of the new tax plan is that you will not be able to write-off as much mortgage interest and as much property taxes you used to able to do before the change took place. Make no mistake you will still be able to write-off your interest and your property taxes.

The silver lining in this is that while this might seem like an overall limitation for homeowners an individual would need to be earning several hundred thousand dollars be able to have the buying power to purchase in $800k or more home to begin with. At a high-income level you are placed into a higher income tax bracket. A higher income tax bracket also means you might be subject to the alternative minimum tax (AMT) which means you might not be able to write-off all your mortgage interest anyway as alternative minimum tax can come into play affecting your ability to write it off.

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