As you’ve probably heard, President Trump signed the new tax bill just before Christmas. Now that the details of the law are known, when will these changes take effect? Given that many people start filing taxes right away in January, you may be wondering whether you will see a change in that tax return. Below is a helpful overview on the tax reform effective date and tax reform impact on homeowners in MA.
Tax Reform Effective in 2018
The tax changes do not take effect until the 2018 fiscal year. The taxes that you file in January of 2018 is actually for the 2017 fiscal year, so there’s no need to worry about new forms and calculations this time around. The federal government has an entire year to figure things out before you file your tax return in January of 2019.
What to Expect from the New Tax Law
Here’s a high level overview of the changes.
- The standard deduction is doubling.
- Tax brackets are changing.
- Some itemized deductions will be eliminated or capped.
Tax Reform Impact on Homeowners in MA
Mortgage Interest Deduction
If you own a home in Massachusetts and closed on your loan prior to December 14, 2017, you get a bit of a break. You may deduct mortgage interest on your primary home against $1 million of the loan amount. If you closed on your loan after that date, then you may only deduct interest paid on up to $750,000 of the loan amount. Thus, tax reform impact on homeowners in MA is a bit less desirable for new buyers versus existing homeowners.
Local Tax Deduction
An important change that applies to all homeowners, both pre-existing and new, is that the deduction for local taxes is limited to $10,000. This includes your property tax AND state income taxes. That limit applies to both single and married filers. Given the income and property tax rates in Massachusetts, many will find that they are unable to deduct the full amount of property taxes paid on their home.
Previously, you could deduct moving expenses if you moved for employment reasons and moved a certain distance. This deduction is no longer available unless you are a member of the Armed Forces.
Summary of Tax Reform Impact on Homeowners in MA
It’s unfortunate that the tax reform impact on homeowners in MA seems more negative than positive. In most cases, this shouldn’t discourage you to buy a home. There are still advantages to owning in Massachusetts. In addition to the remaining tax benefits, owning a home is still the best way to build personal equity. The real estate market has been, and hopefully will continue to be strong, allowing homeowners to benefit financially.