The 2018 tax changes, home mortgage deduction, and you

. 1 min read

The new 2018 tax overhaul has numerous changes, and depending upon your circumstances some change are beneficial, others not so much.

One big change is with the mortgage interest deduction limit. Let’s first start with an example of what is a mortgage deduction.

Sally the homeowner

Sally owns her home and has a mortgage principal remaining of $100,000, meaning she has $100,000 left to pay off. She makes annual mortgage payment of $6,080 at an interest rate of 4.5%.

Broken down further, Sally has:

  • Mortgage Principal Remaining: $100,000
  • Annual Principal Payment: $1,613
  • Annual Interest Payment: $4,467
  • Sally is able to deduct the interest payments of $4,467 from her taxes. Certainly takes some of that sting off of having to pay your mortgage!

Try Bankrate’s amortization calculator here with your own amounts.

Changes to the 2018 mortgage deduction limit

Previously, you could only deduct the mortgage interest against the first $1 million dollars of mortgage principal. So if Sally owned a $1.5 million dollar home, she could only deduct the interest payment against the first $1 million of remaining principal. For 2018, the limit changes, decreasing from $1 million to $750,000.

Who does this affect? Well, it really depends on if you live in a high priced home area. About 1.9% of loans from 2013 to 2015 were more than $750,000, so the overall percent of affected people is low, according to the National Low Income Housing Coalition. California accounted for 45.7% of them, and New York accounted for 7.4%.

For certain metro areas it can be even worse: In New York City, 64% of mortgages on homes sold in 2016 were over $750,000, according to data from ATTOM Data Solutions. And in San Francisco, 58% of home loans exceeded the new limit. You get more info the national mortgages here.

Overall, most people are not affected by this the mortgage deduction change, but if you happen to have a mortgage of over $750,000, tax time just got a little worse.


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