The Tax Cuts and Jobs Act (TCJA) will impact the affordability of owning a home or vacation property and using its equity as a means of obtaining lower cost financing for personal expenditures. This will be readily apparent to homeowners when they file their income tax returns for calendar years starting in 2018 in two specific ways.
Impact #1: Deductions for mortgage and home equity loan interest
The TCJA limited the itemized deduction available for homeowners. The original tax code set the limit for this deduction at $1 million for a married couple filing a joint return. The TCJA reduced this limit to $750,000. Under the TCJA, starting in 2018, the limit on acquisition debt is reduced to $750,000 ($375,000 for a married taxpayer filing separately). The $1 million, pre-TCJA limit, however, applies to "acquisition debt" incurred before December 15, 2017, and to debt arising from refinancing such debt, if the refinancing does not exceed the original debt amount. Thus, taxpayers can refinance up to $1 million of pre-Dec. 15, 2017 acquisition debt, without being subject to the reduced limitation