The enactment of the Tax Cuts and Jobs Act caused some major changes to the U.S. tax laws and along with the changes there has been much confusion. There have been myths and rumors circulating about what the new tax laws may mean to certain individuals. Here are some facts to clear up some of those myths.
While the new tax reform has promised to make it easier to file, that doesn’t mean it will be easier for everyone. The new rules will make it easier for an estimated one out of five taxpayers who will no longer need to itemize and instead take the new larger standard deduction. For these people there will no longer be a need to hang on to all those receipts and paperwork. Unfortunately, there are still those who will continue to itemize, for these people things won’t get any easier.
There is a rumor circulating that because of the new laws, mortgage interest will no longer be deductible. Although this is not generally the case, there is still some truth to this rumor. The fact is that mortgage interest can now only can be deducted on up to $750,000 in debt on your primary home and one additional dwelling. But that’s still enough to cover loans on most U.S. homes, where the median price is near $246,000, according to the National Association of Realtors Besides, many buyers make substantial down payments of 20% or more, thus taking out smaller loans.
Some people believe the new laws will not allow interest on home equity loans to be deductible. This is mostly true; the interest deduction has been eliminated. But depending on how the money from the loan is used, some borrowers may still get a tax break. If the loan money is used to for home improvement, it can still be deducted. If the loan money is used to purchase things or pay off other loans, there is no deduction.
There are many other rules that come along with the TCJA, to find out how they may affect you, see a tax professional.