3 costly ways homeowner tax breaks will change in 2018

Republican leaders have been boasting that the tax reform bill “preserves the mortgage interest deduction, providing tax relief to current and aspiring homeowners,” as their bill summary puts it. But the 185-page bill is more complex than that.

The federal income tax deduction for mortgage interest is not among the multiple tax breaks that will disappear in 2018 due to the Tax Cuts and Jobs Act, which President Donald Trump signed into law Friday. But this deduction will be scaled back, making it less valuable for many folks.

Additionally, the tax deduction for other types of home equity debt will disappear in 2018.

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Here are three key changes:

  1. Less mortgage interest will be deductible [SOURCES: H&R Block AND Republican bill summary AND enrolled bill AND conference report]. Taxpayers with mortgages taken out on or after Dec. 15, 2017, can deduct interest on mortgage debt that totals up to $750,000 (or $375,000 for married couples filing separate returns). Under prior tax law, these limits were higher: $1 million and $500,000, respectively. Taxpayers with mortgages taken out before Dec. 15, 2017, can continue to deduct interest on the higher amounts of mortgage debt, however.
  2. Interest on home equity loans is no longer deductible [SOURCES = H&R Block AND enrolled bill]. Before the changes in the tax code, taxpayers could deduct interest on home equity debt that totaled up to $100,000 (or $50,000 for couples filing separately). Such debt includes home equity loans.
  3. Interest on home equity lines of credit (HELOCs) is no longer deductible. Under the prior tax code, taxpayers could deduct interest on home equity debt that totaled up to $100,000 (or $50,000 for couples filing separately). Such debt includes HELOCs.

RELATED: Check out the most tax-friendly states in the US:

Most tax-friendly states in America
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Most tax-friendly states in America

10. Delaware

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9. Mississippi

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8. South Dakota.

(Getty Images)

7. Alabama


6. Louisiana


5. Arizona

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4. Nevada

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3. Florida

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2. Alaska

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1. Wyoming

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All three of these changes take effect after Dec. 31, 2017, but expire Jan. 1, 2026 [SOURCES = https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.pdf and https://www.congress.gov/congressional-report/115th-congress/house-report/466/1?overview=closed].

In other words, your 2017 tax return will be your last chance for a decade to claim the greater mortgage interest deduction or the deductions for other home equity debt interest, assuming you were eligible for them previously.

So, if you are considering buying a home, account for the lower threshold for mortgage interest when weighing whether to buy or rent.

If you currently have an outstanding home equity loan or HELOC, pay off as much of it as you can this week, before the year ends. Any interest you pay on such debts in 2018 will not be tax-deductible.

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